Last month, the Thirteenth Court of Appeals addressed the following issue: must an employer who is enforcing a non-compete agreement against a departed employee add the employee’s new employer as a defendant in order to obtain a temporary injunction? The Court found that the new employer must be joined as a party, but not before highlighting the split in authority on this issue.
In Down Time-South Texas, LLC v. Elps, Down Time applied for a temporary injunction seeking to enforce a non-competition agreement signed by its former employee, Elps. At the temporary injunction hearing, Elps’s attorney argued that Down Time should not be allowed to put on evidence to support its application because the agreement was unenforceable as a matter of law for two reasons: (1) it lasted indefinitely; and (2) Elps’s current employer had not been made a party to the suit. The trial court adjourned the hearing to consider the legal questions raised, and before Down-Time was able to submit any evidence in support of its temporary injunction application, the court denied the application. The Court of Appeals affirmed the denial and held that Elps’s current employer should have been made a defendant.
The Court explained that on the one hand, two Texas Courts of Appeals have previously ruled that a temporary injunction does not require the applicant to join the current employer. In Whittier Heights Main. Ass’n v. Colleyville Home Owners’ Rights Ass’n (an unpublished opinion), the Fort Worth Court of Appeals held that the joinder of all necessary parties before issuing a temporary injunction was not required. Similarly, the Beaumont Court of Appeals in Winslow v. Duval County Ranch Co., ruled that a joinder of all necessary parties was not a condition precedent to the issuance of a temporary injunction.
On the other hand, in 1959, the Texas Supreme Court in Scott v. Graham held “that refusal of a temporary injunction when there is an absence of necessary parties, who might readily be joined in the suit, cannot be deemed an abuse of discretion.” The San Antonio Court of Appeals took a similar approach in Bourland v. City of San Antonio, reversing an order granting temporary injunction because only four of forty-six officers were joined in suit. Likewise, the Waco Court of Appeals in Bays v. Wright held that it is a “well settled rule that in a suit of this kind to cancel a contract or to restrain the enforcement thereof, all parties to such contract are necessary parties to the suit.”
The Corpus Christi Court of Appeals in Down-Time followed the Texas Supreme Court‘s long-standing precedent and found that the trial court did not abuse its discretion when it ruled that Dresser-Rand was a necessary party whose absence from the case precluded a grant of a temporary injunction. The Court reasoned that because the requested temporary and then permanent injunction prohibited Elps from working for Dresser-Rand, the injunctive relief affected the employment relationship between Dresser-Rand and Elps. Thus, the relief requested by Down-Time, “if it were granted, would have the direct effect of enjoining both Dresser-Rand and Elps from performing under their existing employment contract.” The Court concluded that “under these circumstances” the requested relief was against both Dresser-Rand and Elps. Thus, the trial court did not abuse its discretion in ruling that Dresser-Rand was a necessary party.
CONCLUSION: Employers seeking enforcement of non-compete agreements should carefully consider the pros and cons of adding the current employer as a defendant. However, they should realize that some Texas courts, including the Thirteenth Court of Appeals, make it clear that adding the new employer is not an option, but a prerequisite to obtaining a temporary injunction. Thus, depending on where the lawsuit is filed in Texas and what type of relief is requested, the enforcing party might not have a choice but to add the current employer as a defendant.
For more information regarding non-competition agreements in Texas, contact Leiza Dolghih.