Non-Compete Agreements in Texas More Enforceable

July 13, 2011 / By Robert Wood

 The Texas Supreme Court’s long-awaited opinion in the Marsh USA case was released on June 24, 2011. As readers of this blog know, in recent years, Texas has gone from being a very anti-noncompete-agreement state to a relatively pro-enforcement state. In the Sheshunoff and Mann Frankfort cases, the court had eliminated arguments that employees had previously used to defeat covenants not to compete in Texas. By accepting the Marsh USA case for review, the Supreme Court suggested that it might further restrict anti-enforcement arguments. And indeed it did.

Prior to Marsh USA, Texas courts had consistently held that in the employment context (as opposed to the sale of a business context), the only consideration that would justify a restrictive covenant was the employer’s providing of confidential information and specialized training. Texas appellate courts had held that an employer’s giving of money to an employee was insufficient to justify a noncompete agreement.

Thus, giving an employee a signing bonus when he signed the no compete agreement, or having him sign the covenant in conjunction with receiving a promotion was not enough. Rather, to have an enforceable noncompete agreement, a Texas employer had to provide its employees with trade secrets, confidential information, or specialized training.

The issue in Marsh USA was whether an employer who had given stock options to its employee could enforce a noncompete agreement against him. The Texas Supreme Court held in the affirmative.

We will have several more blog posts on this important case and its implications. But the main take away from the case is this: The Texas legal landscape pertaining to noncompete agreements is constantly evolving (or devolving, depending upon your point of view). The bottom line is, covenants not to compete are far more enforceable in Texas now than they were just a few years ago. As a result of the holding in Marsh USA, monetary compensation (at least in the form of company stock) may be sufficient to support an employee’s noncompete obligations. This is a major change in Texas employment law.

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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