Texas Supreme Court Expands Enforceability of Non-Competition Agreements

Texas Supreme Court Expands Enforceability of Non-Competition Agreements

Houston, TX — Recently, the Texas Supreme Court expanded the enforceability of Non-Competition Agreements in the case of Marsh USA, Inc. v. Cook. Currently, Texas § 15.50 of The Texas Business and Commerce Code provides that:

“A covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made”

The Supreme Court had previously held that this language meant Non-Competition Agreements must be used to enforce an underlying agreement such as the sale of a business or a Confidentiality Agreement. So an agreement that merely gave compensation to an employee was thought to be insufficient to support a Non-Competition agreement. The Court in Marsh, however, departed from this interpretation and held that an agreement to provide stock options to a key employee was sufficiently related to the long term interests of the company to support a covenant not to compete.

It is unclear the extent to which agreements to compensate employees (key or otherwise) can be used to make non-competes enforceable. This will likely have to be clarified by subsequent cases. It is clear, however, that the Texas Supreme Court is sending a message that Non-Compete Agreements should be more readily enforced by the Courts.

Going forward, Employers seeking to restrict former employees have a clearer advantage in these cases. Having said that, Employers seeking to hire employees who may be subject to a previous Employer’s Non-Competition Agreement must also proceed with greater caution.

For more information on this or other labor and employment matters please contact Tony Stergio at 713.850.4214 or email him.

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