Jottings By An Employer's Lawyer

Friday, April 17, 2009

Texas Law of Covenant Not to Compete Takes Another Step Forward


Anyone who has dealt with the law of non-compete agreements in Texas is aware of a tangled history that grew out of a battle between the legislature and the Supreme Court and culminated in the now infamous decision of Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642 (Tex. 1994). It was a dozen years later before the Supreme Court in its Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006), untangled some of the issues caused by Light and took a step in refocusing the debate in covenants not to compete onto the reasonability of covenants as opposed to what it referred to as "overly technical disputes".

Today, the Supreme Court takes another wording dispute and removes it from the mix. In Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding (Tex.. 4/17/09) the Court dealt with a covenant in an at-will contract where the employee promised not to disclose confidential information, but there was no explicit promise to provide confidential information by the employer. In short, enforceable:

We hold that if the nature of the employment for which the employee is hired will reasonably require the employer to provide confidential information to the employee for the employee to accomplish the contemplated job duties, then the employer impliedly promises to provide confidential information and the covenant is enforceable so long as the other requirements of the Covenant Not to Compete Act are satisfied.

The Court ducked another issue -- whether or not the covenant not to compete statute pre-empts attorneys fees under the Declaratory Judgment Act. Here, the employee filed a declaratory judgment action, got a favorable ruling that the covenant was not enforceable, and was awarded his attorneys fees. Since the Court reversed the underlying favorable ruling, the basis for the attorneys fee award went away, and the Supreme Court did not provide any indication of how it would rule when the case is presented.

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