Texas Federal Court Voids Noncompete Agreement
As readers of this blog know, noncompete agreements are increasingly enforceable in Texas. However, even in Texas, not all noncompete agreements comply with the statutory requirements.
In a case decided a few months ago, the United States Court of Appeals for the Fifth Circuit, applying Texas law, held that a particular noncompete agreement was unenforceable. In that case, the noncompete agreement did not contain an explicit promise by the employer to provide the employee with confidential information (which typically constitutes the consideration given by the employer in exchange for the employee’s promise not to compete). The employee argued that the lack of such a promise rendered the noncompete invalid.
The employer countered that, under Texas law (as stated by the Texas Supreme Court in the Mann Frankfort case), the employer need not explicitly promise to provide confidential information for a noncompete agreement to be valid. And the employer was correct that, under Texas law, a noncompete agreement need only contain an implied promise that the employer will provide confidential information. An implied promise to provide confidential information exists “when the nature of the work the employee is hired to perform requires confidential information to be provided.”
Nevertheless, the noncompete in this case was invalid. Reason: Unlike in the Mann Frankfort case, here, there was no mention in the agreement of confidential information. In Mann Frankfort, the employee had explicitly promised not to disclose confidential information (thus supporting an inference that the employer had implicitly promised to provide it). Here, though, there was no such promise by the employee. In this agreement, there was no mention whatsoever of confidential information. The court held, “This very important distinction cannot be missed.”
This case is a perfect example of why every company that wishes to bind its employees to a valid noncompete agreement should have its agreements reviewed by an experienced practitioner in this area. It’s much better to spend a little money on the front end, to ensure that you have a valid agreement, than to be severely disappointed when a lawyer tells you after the fact that you can’t enforce the agreement that your employee signed.