Marsh USA: Texas Noncompete Agreements More Enforceable

August 1, 2011 / By Robert Wood

The Marsh USA decision, which was handed down by the Texas Supreme Court earlier this month, sent shock waves through the community of lawyers who handle matters involving noncompete agreements.  The decision creates danger for employees bound by noncompete agreements here.  Hopefully, the word about this and other pro-enforcement decisions will get out, so that laypeople can stop referring to Texas as a "right to work" state.

 
When you read a court opinion, the first few pages often give you a hint about how it’s going to turn out.  This opinion was no different.  Early on, the court noted that "The Texas Constitution protects the freedon to contract.  Entering a noncompete is a matter of consent; it is a voluntary act for both parties."  The court went on to overturn several Texas appellate court decisions that had held that certain types of noncompete agreements were unenforceable–i.e., those in which the consideration given involved the payment of money.
 
In Marsh USA, the issue was not whether the payment of money, per se, was valid consideration for a noncompete.  Rather, the issue was whether a particular form of considerattion–stock options–was sufficient.  In this case, the court held that the options were sufficient because they were designed to protect a valid business interest–business goodwill.  Whether the simple payment of money, such as a signing bonus, would be sufficient remains to be seen.  As is often the case in this area of law, no matter how clear the courts try to make things, there are always many things left for the lawyers to argue about.
 
For example, even if a noncompete agreement is enforceable to some extent, the scope of the agreement may be too broad.  The employee may have other legal defenses as well.  But the bottom line of the opinion is this:  Those who think that Texas’ status as a "right to work state" (which has nothing to do with noncompete agreements anyway) invalidates no compete agreements in Texas are sadly mistaken.  In a lot of ways, employees are under more danger from these agreements than ever before.

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About the Author

Robert Wood has been a Texas trial lawyer since 1993. During that time, he has represented small, mid-sized, and Fortune 100 companies in business and employment litigation matters all over Texas and the United States. He has also advised and represented hundreds of individuals in employment litigation matters. Read more about Robert Wood