Unlike many other states around the country, Texas did not see any drastic changes in its non-competition laws in 2018. However, out of a 100 + cases involving non-competition disputes, the following handful stand out:
Held: A non-disclosure agreement that prohibits employees from using, in competition with the former employer, the general knowledge, skill, and experience acquired in former employment is similar to a non-compete clause and must meet the requirements of the Texas Covenants not to Compete Act.
Why it made the top five list: This is the first case in Texas to hold that certain non-disclosure clauses may have to meet the same requirements as non-competition agreements.
Quote: “An agreement prohibiting a former employee in this field from disclosing his acquaintances would therefore be a non-competition agreement in disguise, and would be unenforceable as such. Some of the other categories of confidential information-for example, financial information-might present different problems, but the present motion does not accuse the Former Employees of disclosing anything other than information related to Clients and Contractors.’”
2. Fomine v. Barrett, No. 01-17-00401-CV, 2018 Tex. App. LEXIS 10024, at *8 (App.—Houston [1st Dist.] Dec. 6, 2018)
Held: A non-competition clause that covers a geographic area where an employer plans to extend its business in the future, without any concrete plans to do so (i.e. just the owner saying s/he is going to expand), is geographically overbroad.
Why it made the top five list: Employers will often include in their non-competition agreements areas of future business expansion. This case demonstrates that unless the plans for future expansion are definite, the employers should stick with the area where the business currently operates or where its employees currently work.
3. Ortega v. Abel, No. 01-16-00415-CV, 2018 Tex. App. LEXIS 6690, at *11 (App.—Houston [1st Dist.] Aug. 23, 2018).
Held: The right of first refusal in the asset purchase agreement, which prohibited a party from operating a business without first offering another party the right to be a partner in the business was a “restraint of trade,” subject to the Texas Covenants Not to Compete Act.
Why it made the top five list: This case demonstrates that Texas Covenants Not to Compete Act applies to any restraint of trade, not just the plain vanilla non-competition and non-solicitation agreements in the employment or sale of business context.
4. Accruent, LLC v. Short, No. 1:17-CV-858-RP, 2018 U.S. Dist. LEXIS 1441, at *12 (W.D. Tex. 2018).
Held: A non-competition clause that prohibits employees from competing with their employer anywhere where the employer does business (as opposed to where the employees worked) can be enforceable against those employees who had extensive access to the company’s confidential information.
Why it made the top five list: Generally speaking, an employer can only prohibit an employee from competing in the area where the employee worked. However, this case creates an exception to the rule where employees have extensive access to and “intimate knowledge” of highly confidential information of their employer.
Quote: “Because Short was Lucernex’s senior solution engineer, he now has an “intimate knowledge of all Lucernex product functionality.” Short knows about Lucernex’s unreleased software and its roadmap for future product development. He knows the product functionalities requested by Lucernex customers. He knows Lucernex’s business development plans, its market research, its sales goals, and its marketing strategy. . . Given everything Short knows about Lucernex and its products, customers, and prospects, Short can help a competitor take business from Accruent in any state or country where Lucernex did business. It is therefore reasonable for the noncompete provision to extend to every state or country in which Lucernex did business.”
5. D’Onofrio v. Vacation Publ’ns, Inc., 888 F.3d 197, 212 (5th Cir. 2018)
Held: A non-competition clause that prohibits an employee from working for competitors of the former employer “in any capacity,” without geographic or client-based boundaries, is unenforceable.
Why it made the top five list: The Fifth Circuit confirmed, yet again, that an industry-wide restraint on a departing employee, which is not limited to a certain geographic area or the clients that the employee dealt with, is unenforceable under the Texas Covenants Not to Compete Act.
*Keep in mind that any decisions mentioned in this post may be appealed and their holdings may be overruled. Therefore, employers should always consult with a qualified employment lawyer to determine the current status of the law applicable to their particular dispute.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.