A Texas Court Refuses to Enforce a Non-Compete Agreement In a Case Involving Every Employer’s Worst Nightmare

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Last week, a federal court in Texas refused to enforce a company’s non-compete agreement against four key employees who started a competing business because the agreement was missing a key term – the end date.  The company argued that the court could rewrite the non-compete to add a reasonable end date (a procedure sometimes allowed in Texas) but the court refused to do it holding that it could not fix an unenforceable agreement. Thus, the four employees who started a competing business remain free to compete and solicit the company’s clients. 

The company argued that while the employees worked there, they, collectively, were exposed to all kinds of confidential information, including company-wide strategic plans, OEM relationships and pricing levels, details of written and oral contracts with customers, manuals, forms, techniques, methods and procedures at the company,  the Salesforce database that contained a list of all company customer contacts and point persons within the customer, as well as specific notes from customer visits and discussion points, cost of materials, and the company’s product margins.   The company also told the court that it allowed the departed employees to entertain customers and reimbursed them for expenses, and paid for their cell phones used to communicate with such customers.  

Nevertheless, because there was no evidence that the employees took any confidential information with them when they left and because the company admitted that its product manufacturers and customer information were not confidential, the company could not stop the employees from competing once the court declared the non-compete agreement not enforceable. 

BOTTOM LINE: The above situation can be avoided through simple practice of: (1) knowing what is in the company non-compete agreements; (2) making sure all the key provisions required by the relevant statutes are included; and (3) periodically updating non-compete agreements so that they are compliant with the relevant state law.   

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.

 

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