Appeal from the United States District Court for the District of Columbia (95cv1782)
Before: Silberman, Randolph and Tatel, Circuit Judges.
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Opinion for the Court filed by Circuit Judge Silberman.
Appellant seeks to enjoin two former employees, based on a covenant in their employment contracts, from working for a competitor on behalf of previous clients. The district court concluded that the contract clause did not cover the appellees' activities. We are inclined to disagree but since appellant has not clearly demonstrated that it will suffer irreparable harm, the district court's refusal to issue a preliminary injunction is affirmed.
Smith, Bucklin is a management company that provides services to various trade and professional associations. It conducts such activities as government relations services (keeping track of the current regulatory situation, lobbying, and developing relationships with governmental agencies and officials), administrative services, public relations, customer relations, marketing, and research services for its clients. Smith, Bucklin's employees usually become closely associated with clients, often holding titles that identify them with the organizations they serve. William Sonntag was hired by Smith, Bucklin in 1989 to manage the government relations work of the National Association of Metal Finishers (NAMF), a Smith, Bucklin client since 1977. Subsequently, the American Electroplaters and Surface Finishers (AESF) and Metal Finishers Suppliers' Association (MFSA), although never establishing a client relationship directly with Smith, Bucklin, made contributions to NAMF so that they could receive information gathered by Smith, Bucklin's NAMF government relations operation. Victoria Shaw was hired to assist Sonntag in his work for NAMF. Sonntag's title was NAMF's "Director of Government Relations," and Shaw was its "Senior Manager of Government Relations."
Sonntag and Shaw, without at the time telling Smith, Bucklin, accepted positions in May, 1995 with one of Smith, Bucklin's competitors, National Environmental Strategies (NES). On June 5, 1995, NAMF told Smith, Bucklin that it was switching to NES. Not surprisingly, when NAMF left so did AESF and MFSA. Sonntag and Shaw were told, on June 12, that their employment was terminated as of June 17 (the date NAMF formally entered into a client relationship with NES). They promptly shifted to NES, continuing to provide the same government relations services for NAMF, AESF, and MFSA.
Smith, Bucklin filed a complaint seeking damages and injunctive relief against Sonntag and Shaw for allegedly breaching a covenant not to compete and their common-law duty of loyalty. The source of the purported contractual obligation is the first prohibition in the covenant, in all of Smith, Bucklin's employment contracts with its high-level executive or managerial employees, which states:
Executive agrees that, during his employment by Company and for a period of 10 months after the effective date of the termination of such employment (for any reason and whether by Executive or Company), he will not directly or indirectly, alone or in conjunction with, through, or for any other person, firm, association or corporation, (1) solicit or accept the business of managing or advising on the management of any association, organization, society or other person or entity which at any time during the three years ending with Executives termination, was a Company client, customer or source of business with which Executive dealt or had any contact as an account executive or (2) otherwise cause or contribute to the diversion from Company of any such business.
(Emphasis added.) The contract also provides that, if the employee violates the covenant, irreparable injury will result to the company and the employee agrees to be enjoined. *fn1 The District of Columbia Superior Court issued a temporary restraining order prohibiting Sonntag from performing services for NAMF, which was later expanded to cover AESF and MFSA. It refused to impose a restraining order on Shaw. The case was removed to federal district court and Smith, Bucklin sought a preliminary injunction prohibiting Sonntag and Shaw from performing government relations work at NES for NAMF, AESF, and MFSA until June 30, 1996.
The district court, applying District of Columbia law, *fn2 vacated the temporary restraining order and refused to issue a preliminary injunction, holding that Sonntag and Shaw's government relations work did not entail the "managing or advising on the management" of any organization. (Whether Sonntag or Shaw violated the second prohibition, "otherwise cause or contribute to the diversion from Company of any such business," is still pending before the district court.) The court noted that restrictive covenants are narrowly construed and, like all contracts, construed against the drafter-Smith, Bucklin. The court thought the contract, furthermore, was one of adhesion-a contract entered into between parties with vastly unequal bargaining positions-because Smith, Bucklin has been inserting this covenant into its employment contracts for the last 20 years and the provision was not discussed when Sonntag and Shaw were hired. As applied to Shaw, the restrictive covenant was, moreover, against public policy since she earned only $35,000 a year, had been an employee at Smith, Bucklin for less than a year, was terminated on 5 days notice with no continuing health insurance or severance pay, and since the covenant's enforcement ...