The Texas Supreme Court recently made it even easier to enforce noncompete agreements. Ever since the court’s opinion in Alex Sheshunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006), it has been an open question whether, to be enforceable, a noncompete agreement must contain an explicit promise by the employer to provide confidential information to the employee. In Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009), the court answered this question, and held that the employer’s promise to do so can sometimes be implied.
Under the Texas Non-Compete Act, TEX. BUS. & COM. CODE § 15.50, a covenant is enforceable if it (a) is ancillary to or part of an otherwise enforceable agreement, and (b) contains reasonable limitations on the time, geographical area, and scope of the activity to be restrained, which do not impose a greater restraint than necessary to protect the employer’s goodwill or business interest. To be “ancillary” to an “otherwise enforceable agreement,” the consideration typically consists of an employer’s promise to provide an employee confidential information, which makes the non-compete covenant necessary to enforce the employee’s return promise not to disclose the confidential documents or materials.
In Mann, the Texas Supreme Court held that even if the noncompete agreement does not contain an explicit promise by the employer to provide confidential information, if the employee’s job will reasonably require the employer to do so, then an implied promise to provide confidential information exists. This implied promise will provide the consideration necessary to make the noncompete agreement enforceable.
This is an important holding, obviously, because it means that some noncompete agreements that were previously thought to be enforceable, now arguably are. Of course, the employee bound by the non-compete agreement will still be able to challenge whether the information given to him was truly confidential, and he also may be able to contend that the scope of the restriction is unreasonable.
Nevertheless, the combined effect of Sheshunoff and Mann suggests that the Texas Supreme Court may be tiring of “technical” arguments over the enforceability of noncompete agreements. Rather than constantly focusing on the precise wording of the agreements, and on when the information which arguably justifies the restrictions was conveyed to the employee, the court may be signaling a desire to focus on what it considers to be the true substantive considerations: whether confidential information was in fact conveyed and, if it was, whether the information justifies the restrictions contained in the agreement.
For employers whose current or former employees are bound by noncompete agreements (particularly if the agreements were signed years ago), this will make enforceable some agreements that otherwise would be unenforceable.
If you have any questions regarding the foregoing, please feel free to contact one of our attorneys listed below.
Gregory C. Mack
(469) 519-1020
gmack@macklawoffice.com
Carie P. Mack
(469) 519-1020
cmack@macklawoffice.com
