Texas Supreme Court eases limits on noncompete pacts

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in Leaders & Managers,Management Training

If you've shied away from using noncompete clauses with employees in the past due to the unpredictability of their legality in Texas, it's time to rethink that strategy. Reason: The Texas Supreme Court last month reversed its 12-year-old precedent on compete contracts for at-will employees ... and the news is good for Texas employers.

The important ruling means Texas courts, in determining whether a noncompete is valid, will look less at the technical timing aspects of the contract and more at whether the agreement is reasonable to protect your company's interests. Until the Oct. 20 decision, the law in Texas was unclear. Now, it will be easier to draft and enforce noncompetes.

Contact legal counsel for help drafting a noncompete that takes advantage of the decision.

The case: Kenneth Johnson worked as an at-will employee for Alex Sheshunoff Management Services (ASM). The company awarded Johnson a promotion after five years, but it also told him he had to sign an employment agreement that contained a noncompete clause, or he'd lose his job.

In a one-year noncompete, Johnson promised not to solicit ASM clients. In return, the contract promised Johnson access to training and confidential company information.

Johnson eventually quit, went to work for a competitor and solicited ASM clients. So ASM sued to enforce the noncompete.

The lower court, applying existing case law in Texas, said the noncompete pact was invalid because, at the moment it was signed, ASM had done nothing except make a promise of access to confidential information. This, the court said, was illusory and could not be a valid contract. ASM appealed.

The Texas Supreme Court said the contract was valid. It interpreted the Texas Covenants Not to Compete Act to cover at-will employees so long as the employer eventually delivers the confidential information and training promised at some point during the employment. (ASM v. Johnson and Strunk & Associates, No. 03-1050, Texas Supreme Court, 2006)  

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