The Night the Light Went Out in Texas: What Employers Now Need to Know about Enforcing and Defending Texas Noncompetes Corporate Counsel Series. Strasburger & Price, LLP www.strasburger.com. Summary. Background on Noncompete Agreements in Texas and Case Law
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The Night the Light Went Out in Texas:What Employers Now Need to Know about Enforcing and Defending Texas NoncompetesCorporate Counsel Series
Strasburger & Price, LLP
(1) “otherwise enforceable agreement” or
(2) “ancillary to or part of.”
a. ancillary to or part of an otherwise enforceable agreement
b. consideration must “give rise” to a reason to restrain trade
c. a reciprocal promise by employee
OR, stated another way …
NO – Employer did not promise anything.
“Employee agrees that he may have access to Employer’s Confidential Information. In consideration thereof, Employee agrees to maintain the confidentiality of Employer’s Confidential Information.”
PROBABLY NOT - Employer did not promise anything and employee only acknowledged possible receipt of, or access to, information from some unnamed source. But, there is arguably an implied promise to provide information.
UNCERTAIN - Employer did not specifically promise to actually provide confidential information. However, the language affirmatively states that Employee will have (not “may have”) access to the information. At this time, post-Sheshunoff courts may find such language enforceable IF proof of actual receipt of information exists.
MOST LIKELY YES – Employer is, arguably, affirmatively obligating itself to make the confidential information available. Enforceability will still be very dependent on whether confidential information was actually provided.
YES - Employer is affirmatively obligating itself to provide confidential information. While Sheshunoff requires proof that such information was provided, there should not be any argument as to whether the promise was to simply make such information “available” or “accessible.”
Time: 1 – 2 years = Probably OK, but 3 years is pushing it ….
PROBLEM – Assuming a reasonable time period, nothing suggests that “Company Clients” is defined as only those clients for whom Employee provided services. Moreover, “services” is too broad and should be limited to the services Employee provided for the Company.
PROBLEM – Although eighteen months is probably a reasonable time period, nothing suggests that “Company Business” is restricted to the services Employee provided for the Company or to the business that Employee provided for specific Company clients. The “prior written consent” language simply creates more grounds for litigation.
PROBLEM – Although the prohibitions’ scope is more specific to the Employee’s actual contacts (but the subordinates’ contacts may be a stretch), there is no stated duration for the noncompete.
PROBLEM – A two-year period is normally reasonable. Assuming “Services” is not overly broad, and the prohibition is limited to a very specific geography. But “prospective clients” and “primary business operations” are very open-ended terms, and they do not address Employee’s involvement with such Company clients.
1. Was the agreement ancillary to or part of an otherwise enforceable agreement?
2. Did the consideration “give rise” to a reason to restrain trade?
3. Was there reciprocal promise by the employee?
4. Is it reasonable in terms of time, scope and geographic limitation?
5. Was new confidential information provided to the employee during her employment?
1. Does the agreement contain a promise/agreement to provide confidential information?
2. Remember, money – no matter how much – is not sufficient consideration for a noncompete. This is the old American Fracmaster case. Likewise, stock options are likely insufficient. They can be used as consideration for a contract but not a noncompete.
3. Is there a return promise by the Employee not to use or disclose the confidential information?
4. Is the covenant reasonable in terms of time?
5. Is the covenant reasonable in terms of scope and geographic restriction?
6. Did the employee received confidential information. For example, in DeSantis v. Wackenhut, 793 S.W.2d 670:
“ Wackenhut also claims that it possessed confidential information protected by an agreement not to compete. Specifically, Wackenhut contends that during his employ, DeSantis learned the identity of Wackenhut’s customers, their special needs and requirements, and Wackenhut’s pricing policies, cost factors and bidding strategies. Again, while confidential information may be protected by an agreement not to compete, Wackenhut has failed to show that it needed such protection in this case. Wackenhut failed to show that its customers could not readily be identified by someone outside its employ, that such knowledge carried some competitive advantage, or that its customers’ needs could not be ascertained simply by inquiry addressed to those customers themselves. Also, Wackenhut failed to show that its pricing policies and bidding strategies were uniquely developed, or that information about its prices and bids could not, again, be obtained from the customers themselves.”