CHICAGO—Employees that recently left CRC Insurance Services Inc. for Ryan Specialty Group Inc. can continue working while the legal battle between the rival wholesale brokers proceeds, a federal judge ruled Monday.

Judge James Zagel of U.S. District Court in Chicago denied CRC's request for a preliminary injunction, saying any such move would result in “significant harm” to the 39 former CRC employees, according to court documents.

CRC was seeking a preliminary injunction against the former employees; Chicago-based Ryan Specialty; its founder, Patrick G. Ryan; and Ryan Specialty RT Specialty L.L.C. Birmingham, Ala-based CRC was seeking to restrain its former employees, who resigned last month, from being employed by or associated with any entity in competition with CRC in the state of Illinois, and from soliciting CRC's employees and customers for two years, as stipulated in the employees' respective employment contracts, according to court records.

The legal battle stems from a move last month that saw more than 120 CRC employees in Chicago, Philadelphia and California leave CRC to join RT Specialty. CRC—which has also filed suits in California and Alabama—argued in court papers that if the former employees are not enjoined from violating noncompete, nonsolicitation and nonaccept provisions in their employment contracts, “CRC's very survival is in jeopardy.”

In his ruling, Judge Zagel said: “While I acknowledge that a failure to issue this injunction will result in some continued harm to CRC, not only through loss of business, but also in the damaged morale of the remaining employees, this harm is outweighed by the significant harm to the 39 (former CRC employees) who would be enjoined from working for (Ryan Specialty) and largely preclude any possible employment in their chosen field, the damage to (RT Specialty) if forced to close its doors, and the harm to CRC's former clients of not being able to choose their broker of choice.”

CRC turned to U.S. District Court in Chicago earlier this month after an Alabama circuit court judge ruled May 28 that the court did not have jurisdiction over Ryan Specialty, Mr. Ryan and RT Specialty because the alleged wrongdoing did not occur in Alabama.

CRC previously said it planned to appeal the court's jurisdictional decision. In addition, CRC said it will continue to pursue litigation in Alabama against Ed McCormack, an attorney who worked for CRC on several matters and was named in CRC's suit.

Separately, a lawsuit filed May 4 by former CRC employees in Cook County Circuit Court in Chicago has been removed, and an amended complaint has been filed in federal court in Chicago, according to court documents filed Friday. Approximately 60 employees are seeking a declaration that restrictions in their employment contracts are unlawful and contrary to public policy, according to documents.

CRC Chairman and CEO Tom Curtin said in an email statement that he was “disappointed with the Court's decision.”

“We are only at the beginning of what will be a protracted legal dispute. CRC intends to continue vigorously defending itself and protecting its business. Throughout this process, our clients are our primary focus,” Mr. Curtin said.

Ryan Specialty Group could not immediately be reached for comment.