What is Proper Consideration for Texas Non-Compete Agreements?

For a non-compete agreement to be enforceable, an employer must give an employee something of value in exchange for his or her promise not to compete.  In some states, just a promise of a job is sufficient.  In other states, employers must pay employees a monetary sum in exchange for their promise not to compete.  In Texas, neither money nor a promise of a job are sufficient to make a non-compete agreement enforceable.

A recent decision from the U.S. District Court for the Western District of Texas serves as a reminder that a non-compete agreement governed by Texas law must be supported by the right kind of consideration or it will not be enforced.  The Court in Miner Ltd. v. Anguiano was faced with an application for a preliminary injunction by the employer who sought to enforce a non-compete clause in its former employee’s employment agreement.  The Court denied the injunction finding that the company failed to show that it gave Anguiano the right kind of consideration for his promise not to compete.1  In its ruling, the Court explained the consideration rules in Texas as follows:

At-will employment is insufficient consideration to support a non-compete covenant under Texas law. … [However,] Texas courts have regularly found there is an enforceable agreement supporting a non-compete covenant where an employer promises to provide an employee with confidential information and the employee promises not to disclose such confidential information. 

Thus, while a promise of a job is not sufficient to make a non-compete enforceable, a promise by the employer to provide the employee with confidential information, followed by the employer’s actual provision of such information, will create proper consideration for the agreement.

Unfortunately for Miner, however, it was unable to demonstrate to the Court that it had actually provided Anguiano any confidential information despite Anguiano having worked for Miner for 17 years as a salesman, account executive, president, and managing member of the company.  In denying the injunction on that particular agreement, the Court explained its conclusion as following:

Plaintiff asserts that Anguiano, as an Account Executive, was privy to confidential information because the confidential information is required “for the work to be performed. At the hearing, Plaintiff asserted that “the confidential information includes things like business strategy, where are we going, pricing information, margins.” Plaintiff has not persuaded this court that this case involved the dissemination of “confidential information.” … Plaintiff has not shown its business practices, pricing, margin, or strategy were uniquely developed or not readily accessible. Furthermore, Plaintiff’s alleged “confidential information” is vague at best. Plaintiff struggles to identify and expand upon the alleged confidential information. The court will not infer a fact into existence. The Employment Agreement lacks consideration and is unenforceable.

The Court’s ruling in Miner serves as a great reminder that an employer seeking an injunction against an employee must be prepared to specifically describe the confidential information provided to the employee and explain why such information is confidential.  Conclusory statements on this subject may not suffice where an employee claims that all information given to him or her during the employment is publicly available (spoiler: this is usually the case).

BOTTOM LINE:  Employers in Texas who roll out new non-compete agreements or update their existing ones, should always make sure they provide the right kind of consideration for such agreements. Employers with multi-state operations, may need to provide several different types of consideration to meet the standards of each state.

Additionally, employers who seek to enforce their non-compete agreements in court should be prepared to identify and explain what consideration they provided to their employees, beyond mere conclusory statements.  

The Court did grant an injunction based in a non-compete clause in another agreement signed by Anguiano, which is not discussed in this blog post. 

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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