Unreasonable Noncompete Agreement Can Subject Employer to Potentially Huge Liability in Texas
Several Texas courts have held that a victorious employer in a noncompete case cannot recover its attorneys’ fees against the losing employee. This is based upon the fact that the Texas noncompete statute does not explicitly authorize an award of attorneys’ fees to a winning employer.
However, a recent case out of the Houston Court of Appeals shows that an employer who requires its employee to sign an overly broad noncompete agreement, and then seeks to enforce the overly broad agreement, may have to pay the employee’s attorneys’ fees at the end of the litigation.
In this case, there was evidence at trial suggesting that the employer knew that the noncompete agreement it required its employees to sign was overly broad with respect to the scope of activity to be restrained. Also, there was evidence that the employer attempted to enforce the noncompete agreement to an unreasonable extent. After a jury entered a take-nothing for in favor of the defendants, the trial court assessed $750,000 in attorneys’ fees against the employer which brought the lawsuit. This award was largely upheld on appeal.
The important thing to keep in mind from this decision is that, even though the noncompete statute requires the trial court to reform an overly broad covenant, the employer has a strong incentive at the outset to ensure that the covenant is as reasonable as possible. This can be done by focusing on the company’s legitimate needs and the employee’s duties. An employer that requires its employees to sign unreasonable noncompete agreements, and then attempts to enforce those agreements in an unreasonable way, can face liability, as the employer in this case found out the hard way.