Texas Covenant Not to Compete Agreements Law: Can An Employer Protect Its Customer Relationships?
In several states, an employer may–via a non-compete agreement–prevent a departing employee from taking advantage of the relationships the employee developed with the former employer’s customers. This is true whether or not the identities of the former employer’s customers are "confidential."
In those states, therefore, the former employer can successfully contend, "We introduced you to our customers and you’ve developed good relationships with them, but you can’t compete with us by taking advantage of those relationships."
There are actually a couple of Texas Supreme Court cases that stand for the proposition that protecting customer relationships is an interest sufficient to justify a non-compete agreement. However, those cases have been largely ignored in recent years.
In Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 387 (Tex. 1991), the court noted:
The fundamental legitimate business interest that may be protected by such covenants is in preventing employees or departing partners from using the business contacts and rapport established during the relationship of representing the accounting firm to take the firm’s customers with him.
In an earlier case, Henshaw v. Kroenecke, 656 S.W.2d 416, 418 (Tex. 1983), the court had stated:
Henshaw had a right to protect himself from the possibility that Kroenecke would establish a rapport with the clients of the business and upon termination take a segment of that clientele with him.
Today, whenever an employee leaves and begins "stealing" his former employer’s customers, courts focus on whether the identities of those customers are "confidential." Usually, they are not.
To determine whether customer identities are confidential, courts ask questions such as, "Can the information be easily located (e.g., in telephone books or trade journals)?, and "Did the employer take reasonable steps to keep the information confidential?" These standards are difficult to meet.
But in several other states, the employer need not prove that the information is confidential. Rather, protection of the employer’s relationship with its customer–whether or not the customer’s identity is secret–is sufficient to support a non-compete agreement. A few Texas cases used to speak in those terms as well.