Available Remedies in Texas Non Compete Cases

October 8, 2006 / By Robert Wood

An employer may be entitled to injunctive relief to enforce a non-compete agreement in Texas. To obtain permanent injunctive relief, it is not necessary to prove that, without an injunction, the promisee will suffer irreparable harm. But that is not the case with respect to temporary injunctive relief. Most courts hold that to obtain temporary injunctive relief to enjoin violation of a non-compete provision, one must prove irreparable harm (i.e., that money damages are inadequate).

Irreparable harm may exist if the damages resulting from the breach are hard to quantify, or if the injury cannot be compensated in damages. The threatened disclosure of trade secrets to a competitor can constitute irreparable injury, especially if it would enable a competitor to gain a competitive advantage. Moreover, proof of a continued breach of a non-compete agreement by a highly-trained employee may constitute irreparable harm. In determining whether to grant temporary injunctive relief, the court must balance probable harm to the employer if the injunction is not issued with probable harm to the employee if it is.

In addition to injunctive relief, a court may award damages resulting from breach of a non-compete covenant. Awardable damages might include lost profits resulting from the departing employee’s breach of the noncompetition agreement. A non-compete agreement can contain a liquidated damages provision, but the provision must constitute a reasonable forecast of just compensation for the harm caused by the breach.

If the court holds that the scope of the non-compete agreement is too broad (e.g., if the court holds that the geographic scope should be limited to Dallas /Fort Worth rather than to all of Texas), it will reform the scope to make it reasonable. However, if reformation of the scope is required, damages may only be awarded for “post-reformation” violations. For this and other reasons, an employer has an incentive to ensure that the scope of a non-compete agreement is reasonable.

Attorney’s fees and costs may be awarded to the promisor (employee) if he proves that: the scope of the covenant is unreasonable, the employer knew at the time the agreement was signed that it was unreasonable, and the employer has attempted to enforce the covenant to a greater extent than necessary to protect its goodwill or other business interests. Texas cases also hold that an employee who seeks a judicial declaration that a covenant not to compete is unenforceable and void in its entirety may be entitled to recover attorney’s fees under the Texas Declaratory Judgment Act.

There is no provision in the non-compete statute for an employer who successfully prosecutes an action against an employee to recover attorney’s fees. At least one Texas court of appeals has held that the non-compete statute’s silence on this issue precludes an employer from recovering its fees under the statute (or any other applicable law). However, another Texas court has permitted an employer to recover its fees under the Texas statute allowing the prevailing party in a contract dispute to recoup its attorney’s fees.

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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