Are noncompete agreements enforceable in Texas? You bet they are—more than ever. You know it’s bad news for the employee who is being sued when a court opinion starts with: “Texas law presumes a party has read and knows the terms of the contract that he has signed.” Ever since the Marsh USA decision, Texas courts have increasingly had a “You signed it, it’s enforceable” mindset.
Of course, that’s not the end of the story. In every case, the court must determine whether the employer actually provided the consideration it promise to provide. And the court must ensure that the scope of the noncompete is reasonable.
And perhaps even more importantly, the court must determine whether the employer suing to enforce a noncompete agreement is entitled to a temporary injunction. To a large extent, the party who wins the temporary injunction hearing wins the case. The reason for this is that, if the employer wins the TI hearing, the employee either cannot work for a competitor or will have other significant restrictions placed upon him. Conversely, if the employee prevails at the TI hearing, he may be able to compete with his employer at least until the final trial on the merits.
A recent federal case from the Southern District of Texas shows how this plays out in practice. In that case, the defendant (a former employee) had allegedly engaged in some very serious misconduct (i.e., use and disclosure of his former employer’s confidential information). The employer sued and sought, among other things, a preliminary injunction to prohibit the defendant from working for a competing company.
In granting the employer the primary injunction it sought, the court held, “In Texas, injury resulting from the breach of non-compete covenants is the epitome of irreparable injury.” The court then cited Texas cases holding, “An employee who possesses trade secrets belonging to a former employer accepts employment with one of its competitors, even if acting in good faith, will have difficulty preventing his knowledge from infiltrating his work.” The court added: “Thus, the courts have recognized the need for injunctive relief in these situations.”
The court held that a second justification for a preliminary injunction was that the employee “has been using Daily’s confidential, proprietary and/or trade secret information unlawfully to compete against Daily, and is sharing that information with Daily’s competitors in violation of the [noncompete and nondisclosure agreement].”
In this case, the defendant allegedly engaged in some egregious conduct (unauthorized use and disclosure of confidential information, breach of fiduciary duty, etc.). This conduct alone would have justified the court in granting the employer’s request for preliminary injunction. However, rather than base the injunction upon this conduct, the court based it in part upon the employee’s mere violation of the noncompete agreement. This case is yet another reminder that the tide has turned in Texas against defendants in these cases.