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Texas Supreme Court relaxes rules on noncompete agreements

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in Employment Law,Human Resources

by Scott Brutocao and David Comeaux, Esqs.

A new Texas Supreme Court ruling on covenants not to compete (also known as noncompete agreements) is good news for employers. The court’s decision in Marsh USA v. Cook (No. 09-0558, Texas Supreme Court, 2011) moved away from technical questions of contractual enforceability and emphasized the core question of whether the scope of such covenants is reasonable.

The court held that an employer can obtain a covenant not to compete in return for an employee’s acceptance of a stock-option grant, as long as the covenant is reasonable in time, scope and geography.

Cook’s noncompete

Rex Cook was a senior executive at insurance brokerage Marsh USA. Marsh offered Cook an option to purchase 500 shares of stock. In return, Marsh required Cook to sign a nonsolicitation agreement and pay for the stock at the strike price. In 2005, Cook exercised the option and signed the agreement.

The agreement ...(register to read more)

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