Many a business owner has been tempted to save a few hundred dollars by using a non-compete agreement found somewhere on the web or bought from Legalzoom or the like. The problem with such an approach is, of course, that every state has different rules about what makes a non-compete agreement enforceable. What might be enforceable in one state, might be a worthless piece of paper in another. This is why obtaining a form non-compete agreement, without verifying its enforceability in Texas, is dangerous. It is also dangerous not to update employees’ non-compete agreements, as the law on this issue is always evolving.
I do not know if either of those factors were present in Hunn v. Dan Wilson Homes, but the non-compete in that case was clearly missing the language necessary to make it enforceable in Texas. It could have been because the owner copied an agreement from another state, or did not update the agreement, or because the necessary language was omitted from the agreement by mistake. In the end, it did not matter, as the court refused to enforce the non-compete against an employee who, after leaving his employer, continued to work directly for his employer’s client.
In Texas, for a non-compete to be enforceable it must “be ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.” The Fifth Circuit in Hunn v. Dan Wilson Homes recently re-affirmed that in Texas, a non-compete agreement must be accompanied by either a promise from employer to provide an employee with confidential information or an employee’s promise to keep confidential information provided by the employer confidential. Without such promises, a non-compete agreement that is based simply on an employer’s promise of continued employment in an at-will contract is unenforceable. In other states, simply promising to provide an employee with employment is enough to make a non-compete agreement valid. However, Texas courts require more.
Takeway for Employers: Determination of the sufficiency of consideration for a non-compete executed by an at-will employee often turns on which state’s law applies. If the relevant facts and circumstances permit, an employer should include a choice-of-law provision designating the law of a state where at-will employment is adequate consideration. However, where an agreement is governed by Texas law, a simple promise to continue to employ an at-will employee is not enough to support a binding non-compete.
Takeway for Employees: Not every non-compete agreement is enforceable in Texas. If your employment agreement contains a non-compete clause, you should consult with an attorney before signing your agreement to determine what consequences you will be facing if your employer decides to enforce it against you in the future. Likewise, if you have already signed one but are trying to figure out what your options are once you leave your employment, consult with an employment attorney to determine whether it enforceable and what course of action to take.
You can read the entire case here.
Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.