A company that provides wound care sued its former employee for violating his non-compete agreement, which contained the following provision:
Defendant for the term of his or her association with the Company and a period of two years thereafter, regardless of the reasons for termination thereof, with or without cause, will not participate within the United States, Canada, Western Europe or Japan as an owner, stockholder…manager, agent, consultant, director, …salesperson or employee of any other business, firm or corporation.
When the company hired the employee as a sales representative in 2014 his sales territory included seven Texas cities: Lubbock, Amarillo, Midland, Odessa, Abilene, San Angelo, and Big Spring. Later, when he was promoted to a more senior position, he also began to manage three more cities – El Paso, San Antonio, and Lubbock. Thus, at no time, did his territory included all of the United States, Canada, Western Europe or Japan mentioned in his non-compete agreement.
The employee moved to dismiss the employer’s claim on the grounds that his non-compete was geographically overbroad and, therefore, unenforceable under the Texas Covenants Not to Compete Act. The Court agreed with the employee.
When are non-compete restraints overbroad?
Texas courts generally consider the “territory in which the employee worked for the employer” to be a reasonable geographic restriction. TransPerfect Translations, Inc. v. Leslie, 594 F. Supp. 2d 742, 754 (S.D. Tex. 2009); Daily Instruments Corp. v. Heidt, 998 F. Supp. 2d 553, 567 (S.D. Tex. 2014); Merritt Hawkins & Assocs., L.L.C. v. Gresham, 861 F.3d 143 (5th Cir. 2017) (“Texas courts generally enforce covenants that are restricted to the geographic territory within which the bound employee worked during his employment.”). Thus, the wider an employee’s work or sales territory, the greater the likelihood of a wider geographic restriction. Daily Instruments Corp. v. Heidt, 998 F. Supp. 2d 553, 567-68 (S.D. Tex. 2014); M-I LLC v. Stelly, 733 F. Supp. 2d 759, 798 (S.D. Tex. 2010) (Ellison, J.) (citing Vais Arms, Inc. v. Vais, 383 F.3d 287, 295 (5th Cir. 2004)). Additionally, if employees are engaged in upper management positions, and/or business relationships or direct sales responsibilities with international clients, the greater the likelihood Texas courts will find a broader geographic scope reasonable. Daily Instruments Corp. v. Heidt, 998 F. Supp. 2d 553, 567-68 (S.D. Tex. 2014).
Why was the no-compete geographically overbroad in this case?
In this case, as the employee argued that his non-compete clause covered many states, countries, and even parts of a continent where the employee never did anything for his employer. In fact, the employee’s sales territory never extended beyond several cities, and his management territory, though wider, remained in Texas.
Additionally, the employee was never employed in the highest management positions or had business relationships or engaged with international clients. Therefore, the Court found that the non-compete clause’s geographic restriction was overbroad and unreasonable.
What did the Court do when it found that the non-compete geographic area was overbroad?
Under Texas Business and Commerce Code Section 15.51 (“Section 15.51“), a court must reform, i.e. re-write an unreasonable non-compete covenant. In this case, because the parties’ non-compete clause was overbroad, the court held that the reformation was “automatic.” Accordingly, since the employee’s sales territory, the court reformed the non-compete agreement to reflect that territory.
Importantly, because the Court reformed, i.e., re-wrote the non-compete, employer’s sole remedy was injunctive relief and no monetary damages. This means, that the company could get an injunction against the employee prohibiting him from working in the geographic area in which he used to work for the company, but could not get monetary damages that his competition might have caused prior to the court re-writing his non-compete restraints.
Organogenesis, Inc. v. Melcher, U.S. Dist., N.D. Tex. (Mar 11, 2025)
Leiza Dolghih is the founder of Dolghih Law Group PLLC. She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.