Texas Appeals Court Reverses Denial of Temporary Injunction in Noncompete Case
Once again, a Texas appellate court sides with a company suing to enforce a noncompete agreement. This time, the employer sued a former employee for violating a covenant prohibiting the employee for competing for three years following the termination of his employment. Significantly, the noncompete covenant contained no geographic restriction. It did not, for example, prohibit the employee from working only in the state of Texas.
When the employee went to work for a competitor, the employer filed suit, obtained a temporary restraining order, and then sought a temporary injunction. The request for a temporary injunction was denied. In denying the request, the trial court held that the noncompete was “unenforceable due to a lack of consideration.” The court also held that the agreement was unenforceable due to a lack of any geographic restriction.
The Fort Worth Court of Appeals overruled the district court. The court of appeals considered the following points:
Sufficiency of Consideration: Implied Promise to Provide Confidential Information
The noncompete agreement (which was actually called an Employee Technology Agreement) stated that the employee would receive the following consideration: “continuing employment” and “salary or wages.” On appeal, the employee argued that a mere promise for continued employment was legally insufficient.
Rather than specifically address this argument, the court of appeals, citing the Texas Supreme Court’s Mann Frankfort case, held that the agreement contained an implied promise by the employer to provide confidential information. This confidential information was sufficient consideration for the noncompete covenant, the court held.
“But I didn’t really need the confidential information that was given to me,” the employee argued. The court rejected this contention. “The relevant inquiry,” the court held, “is not whether Liss’s job could has been performed without Tranter’s confidential information but whether it was performed without the confidential information.”
The court found it significant that the employee admitted to having received some company confidential information. The court noted, “The consideration requirement was satisfied by Tranter’s performance in disclosing its confidential information to Liss in exchange for Liss’s promise to keep that information confidential.”
Reasonableness of Restrictions
The court agreed with the employee that the noncompete was “unreasonable and unenforceable as written” because it did not contain a geographic restriction, as required by Texas law. However, the court noted that, as a final remedy in the case, the trial court would be required to reform the noncompete (by supplying the missing geographic restriction). Because of this, the court held, the agreement should be reformed on an interim basis, at the TI stage. The appellate court remanded the case to the trial court to do so.
Probable, Imminent and Irreparable Injury
The appellate court reaffirmed the requirement that, to obtain a temporary injunction, the applicant must prove that, without the injunction, it will be irreparably harmed. The court held that a “highly trained employee’s continued breach of a noncompete agreement creates a rebuttable presumption that the employer is suffering an irreparable injury.” Then, in reversing the district court’s denial of the application for temporary injunction, the court noted that (a) the employee was directly competing in the same territory and for the same customers; and (b) even though the employee was not actively trying to use his former employer’s confidential information, “there was no evidence rebutting the presumption that Liss would have extreme difficulty in not indirectly applying some of that confidential knowledge in his position at PMC.”
There are at least a couple of takeaways from this case. First, although we didn’t need anymore reminders that noncompete agreements are enforceable in Texas, this case makes that point once again. But the second point is this: Even with an enforceable noncompete agreement, a district court faced with an application for temporary restraining order or temporary injunction must carefully test the plaintiff’s contention that it needs the injunction to prevent irreparable harm. Even though there may be a rebuttable presumption that violation of a noncompete agreement will result in irreparable harm, as we can see in this case, that is not the end of the story. The plaintiff still must make a particular showing of irreparable harm. A plaintiff must be prepared to make the case that it will be irreparably harmed without an injunction.