Dallas Non-compete Lawyer : Non-compete Agreements Texas : Non-compete Contract

To get an injunction restraining former employees from competing, an employer needs a valid non-compete agreement or a misappropriation of trade secrets claim, right?  Wrong.  A breach of fiduciary duty (duty of loyalty) can also warrant injunctive relief.

In a case decided several years ago, two employees worked for a company (“the Corporation”) that was involved in the institutional detergents business.  While still employed by the Corporation, the employees started their own detergent business, and they began competing with the Corporation (while still working for the Corporation).  Their competition included converting some of the Corporation’s customers into customers of their own business.

Eventually, the Corporation terminated the employees, and it sought an injunction against them.  The court, holding that the employees were “not entitled to benefit from such unlawful and disloyal conduct,” enjoined them from “contacting or calling on for the purposes of selling detergent products . . . any former customer of [the Corporation] whose account [the employees] obtained for [their] own competing business.”

The important holding in this case is, even without a valid (a) non-compete agreement or (b) trade secrets claim, a Texas court may enjoin an employee from benefiting from his breach of fiduciary duty.  Thus, an employer should attempt to determine whether a departing employee was competing with the employer while still employed by the latter.  If the employee was doing so, it may be possible to get an injunction to prevent the employee from continuing to benefit from the disloyalty, even in the absence of a non-compete agreement.
 

Gaal v. BASF Wyandotte Corp., 533 S.W.2d 152 (Tex. Civ. App.—Houston [14^th Dist.] 1976, no writ.).

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Another quick hit on the ramifications of Sheshenoff.  In recent years, employers have not infrequently added to their non-compete agreements a promise to convey confidential information to the employee, even if the employee no longer worked for the employer when the information was conveyed.  The purpose of this was to address the employee's argument that, "Because I'm an at-will employee, the employer's promise to provide me with confidential information is illusory because I could be fired before I get it."  Employers dealt with this by contending, "We promised to give him the information regardless of whether he was still employed--thus, our promise was not illusory."

One of the good things about Sheshunoff is that it makes game-playing like this no longer necessary.  Employers need not promise to give confidential information to departed employees.  Employers only need to promise to give the information and then do it (the sooner, the better).
 

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

It's commonly believed--and rightly so--that the Texas Supreme Court's recent decision in the Sheshunoff case makes non-compete agreements relatively more enforceable.  However, let's keep in mind a couple of things that didn't change [even if these are obvious points].

Number one, even after Sheshunoff, if the consideration given for the non-compete agreement is confidential information, the employer must still promise to give it.  Sheshunoff rejects the notion that the confidential information must be provided at the moment the agreement is signed.  However, in that case, the employer did promise to convey the information.  Conversely, if the agreement in that case merely had the employee "acknowledge" that he might receive the information, the non-compete agreement likely would not have been enforced.  Thus, this element of Texas non-compete law has not changed.

On a related note, the confidential information must actually be confidential.  That's an obvious point, perhaps, but the bigger point is this:  the holding in Sheshunoff was not, "Non-compete agreements are now enforceable in Texas."  It was a lot more nuanced than that, and there are still many other requirements that must be met.
 

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link