Top 5 Non-Compete Cases in Texas in 2018

Top5Unlike 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: 

  1. Thoroughbred Ventures, LLC v. Disman, Civil Action No. 4:18-CV-00318, 2018 U.S. Dist. LEXIS 133697, at *10 (E.D. Tex. 2018).*

HeldA 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.

Non-Compete Agreements: Garbage In, Garbage Out

Enforcing Non-Compete Agreements in TexasLast week, a Texas Court of Appeals ruled that a non-compete agreement between a transportation logistics broker and its freight carrier was unreasonable because it was not clear when the 24-month non-compete period would begin to run. This case serves as a reminder that a confusing, ambiguous, or imprecise non-compete agreement will yield poor results in court.  In other words: garbage in, garbage out. 

The covenant not to compete at issue was meant to ensure that the freight carrier would not take away the broker’s clients after the broker had revealed their identity to the carrier.  Thus, there was a legitimate business reason for the non-compete agreement.  However, the following language in the agreement created a problem: 

For a period of twenty four (24) months following the Carrier’s last contact with any client or client[s] of Broker the Carrier agrees it shall not either directly or indirectly influence or attempt to influence customers or clients of Broker (or any of its present or future subsidiaries or affiliates) for whom the Carrier has rendered services pursuant to this Agreement to divert their business to the Carrier or any individual, partnership, firm, corporation or other entity then in competition or planning to be in competition in the future with the business of Broker or any subsidiary or affiliate of Broker. 

The Court explained that there were two problems with this language that made it impossible to determine how long the restrictive covenant was going to last.  First, under the terms of the covenant not to compete, the 24-month restraint period would start from the date of the carrier’s last contact with “any” client of the broker, not just the clients that the carrier had provided services to.  Since the broker testified that its client list was a trade secret, the carrier would have no way of determining the date of its last contact with the clients whose identity it had no way of knowing.  Second, the non-compete would begin to run from the date of the last contact, regardless of whether the contact took place during or after the broker-carrier agreement had terminated, which meant that it could begin at any time. 

Consequently, the Court ruled that a covenant not to compete that extended for an indeterminable amount of time was not reasonable, and as a result, was not enforceable. It reversed the jury’s finding that the agreement had been breached and took away the damages the jury had awarded to the broker.

Texas Bar Association Top TenBOTTOM LINE:  There are plenty of “sample” non-compete agreement “forms” online, but there is a difference between a non-compete clause and a non-compete clause that is enforceable. Unfortunately, many companies do not find that out until they are in court trying to enforce their agreements that may not be enforceable.  Companies should avoid using “standard” non-compete clauses and make sure that their restraints are tightly drafted to address their specific industry, business model, and particular needs. 

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 or fill out the form below. 

 

 

Texas Companies Should Update Non-Compete Agreements with California Employees in Light of a New Statute

Texas California Noncompete AgreementsAny Texas companies that have employees who primarily work and reside in California should update their non-compete agreements with such employees to meet the requirements of the California Labor Code Section 925.  The statute, essentially, forces out-of-state employers to litigate any disputes with their California employees in California courts and apply California law, which prohibits non-compete agreements. Failure to comply with the statute allows employees to sue their company in California to declare their non-compete agreement unenforceable and get their attorney’s fees.  

1. To whom does Section 925 apply? It applies to all employers – regardless of where they are based (so, even Texas companies) – that employ individuals who “primarily reside and work in California.”  The word “primarily” suggests that the employees must both reside and work in California at least half the time.  It applies only to disputes between employers and employees that arise in California. 

2. What does the Section 925 say? It states: “An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: (1) Require the employee to adjudicate outside of California a claim arising in California; (2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.”

3. Is there anything a Texas company can do to avoid the restrictions of Section 925? The statute does not apply where an employee is represented by legal counsel in negotiating the forum selection clause (where any lawsuits will be litigated) or choice of law clause (what law will apply to such future disputes).  Section 925 does not apply to any voluntary agreements that are not a “condition of employment” such as, for example, a separation agreement.

4. How does this affect Texas companies’ ability to enforce non-compete agreements against California employees?  Prior to Section 925 becoming the law, many out of state employers used choice of law clauses to apply the law of those states that allow non-compete agreements in order to avoid California’s ban on non-compete agreements. Section 925 eliminates this option.  Therefore, Texas employers must rely on other protections such as air-tight non-disclosure agreements.  

BOTTOM LINE:  Texas companies with California employees who primarily reside and work in California should review their policies, handbooks, and employee agreements and make sure that any choice of law and forum selection clauses are compliant with Section 925. As far as negotiating individual employment agreements with key California employees, if Texas companies want for Texas law to govern those agreements (and enforce non-compete restraints) the companies should make sure that the individual employees are represented by counsel in the negotiation process in order to meet Section 925 requirements.

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 or fill out the form below.

 

 

 

 

Top 5 Non-Compete Cases in Texas in 2017

yearendAlthough the weather outside suggests otherwise, it is, indeed, December – a time traditionally reserved for reflection upon the year’s achievements.  So, let’s take a look at the top five most important non-compete cases in Texas in 2017.

  1. BM Med. Mgmt. Serv., LLC v. Turner (Tex. App.–Dallas, Jan. 10, 2017)*

Held: The employer failed to show a probable, imminent, and irreparable injury in breach of a non-compete case, as the employee had returned his computer and testified that he did not possess any papers or electronic files related to the employer’s business.

Why it made the Top Five list:  Early in each non-compete breach / trade secrets theft case, an employer may have an opportunity to examine the departed employee’s devices and confirm that its confidential information is no longer there.  This case demonstrates that taking advantage of that opportunity may result in the denial of a temporary injunction as it eliminates the probability of imminent and irreparable injury since the employee no longer has the employer’s confidential information.

2. In re Pickrell (Tex. App.–Waco, April 19, 2017)

Held: The employer failed to produce evidence necessary to obtain a Rule 202 pre-suit deposition to investigate whether its former employee had  honored his non-compete obligations.

Why it made the Top Five list:  A party contemplating a lawsuit in Texas may sometimes depose the potential defendant to determine if it has a legal claim against him/her.  This procedure is called a pre-suit or Rule 202 deposition.  In re Pickrell shows that an employer cannot depose a departed employee for the purpose of investigating whether he/she honored his non-compete agreement based on the employer’s suspicion that the employee may be violating the agreement solely because he is now working for a competitor. 

3. Sanders v. Future Com., Ltd. (Tex. App.–Fort Worth, May 18, 2017)

Held: Requiring an employee to repay training costs is not a covenant not to compete and is not subject to the requirements of the Texas Covenants not to Compete Act.

Why it made the Top Five List: This case establishes that Texas employers can deduct reasonable training expenses out of employees’ salaries if they leave before the employer is able to recoup its training costs.  Any overreaching, however, by employers may result in a violation of the Texas Covenants not to Compete Act.  See, for example, Rieves v. Buc-ee’s Ltd. (below). Additionally, any deductions need to be structured to comply with other laws, such as the Fair Labor Standards Act, and must be verifiable and not speculative. For more information, look here.

4. Rieves v. Buc-ee’s Ltd., (Tex. App.–Houston, Oct. 12, 2017)

Held: Requiring an employee to repay a portion of her salary upon termination is a “restraint on trade” in violation of the Texas Covenants Not to Compete Act. 

Why it made the Top Five List:  The Court’s decision shows that any provision in the employment agreement that restricts employee’s mobility must be analyzed through the lens of the Texas Covenants Not to Compete Act, not just non-compete clauses. For more information, look here.

5. Horizon Health Corp. v. Acadia Healthcare Co. (Tex.  2017)

Held: The employer failed to establish that the departed employee’s actions caused it lost profits because it could not prove that the customer that went with the departed employee would have signed a contract with the employer. 

Why it made the Top Five List:  Texas courts require that a company seeking damages based on lost profits produce evidence establishing that prospective customers would have done business with the company absent the defendant’s misconduct.  In this case, the company failed to show that a customer that it claimed it lost due to the departed employee’s actions would have signed a contract with that company had it not signed with the departed employee’s new company.

*Keep in mind that any decisions by the Texas Courts of Appeals may be appealed to the Texas Supreme Court, which may ultimately disagree with their findings.  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 or fill out the form below.

 

 

Buc-ee’s Repayment Provision in the Employment Agreement Is Declared Unlawful, Likened to Indentured Servitude

Buc-ees 2Last month  I wrote about how Texas employers can require employees to repay the employers’ training expenses related to those employees, even if that means repaying an equivalent of 1/3 of an employee’s salary.   I culminated my article cautioning the companies to make sure that their repayment requirements in the employment agreements do not violate the Texas Free Enterprise and Antitrust Act of 1983. 

Later the same week, the Houston Court of Appeals found that Buc-ee’s did just that by requiring its assistant manager to repay more than $66,000 in salary for leaving her at-will job to go work for another company, which was not even a competitor of Buc-ee’s. 

Here’s a quick look at what Buc-ee’s did, what the Court of Appeals thought of it, and the lessons that Texas employers can take away from this case.

Buc-ee’s’ Employment Agreements

In 2009, Rieves came to work as an assistant manager for Buc-ee’s. The wages arrangement was such that 70% of her salary would be paid on hourly basis and 30% would be paid in flat fee, translating into $14 an hour and a fixed monthly bonus of $1,528.67 (the “Additional Compensation”).

This 2009 Employment Agreement specifically said that Rieves was an “at-will employee” but also stated that she was “required to work” for Buc-ee’s a minimum of five years and had to provide the employer with a 6-month written separation notice.  If she failed to meet these two requirements, regardless of the reason, she had to repay all of the Additional Compensation.

In 2010, Rieves entered into a new employment agreement with Buc-ee’s that contained similar requirements (4 year term and 6-month separation notice) and stated that if Rieves left before 2014, she had to repay a portion of her salary under the 2010 Employment Agreement and the Additional Compensation under the 2009 Employment Agreement. Thus, under the 2010 Employment Agreement, the longer Rieves worked for Buc-ee’s, the more of  her salary she would have had to pay back. 

The Court of Appeals’ Analysis

In looking at the employment agreements, the Court first and foremost noted that Rieves was an “at-will employee,” which, under the long-standing doctrine in Texas, meant that her employment could be terminated by her or Buc-ee’s for good cause, bad cause, or no cause at all. 

Furthermore, the repayment provisions in Rieves’s employment agreements imposed a severe economic penalty on her if she exercised her right as an at-will employee to leave Buc-ee’s.  Therefore, these provisions had to comply with the Texas Covenants not to Compete Act in order to be enforceable.  They did not.

The repayment provisions penalized Rieves even if Buc-ee’s fired her without a cause and they were not related to Buc-ee’s legitimate business interest because they penalized Rieves even if she went to work for a company that was not Buc-ee’s competitor.  Therefore, the repayment provisions were an unfair restraint of trade in violation of the Texas Free Enterprise and Antitrust Act and were not enforceable.

The Lessons for Texas Employers

TexasBarToday_TopTen_Badge_VectorGraphicWhile Texas recognizes the freedom of parties to contract, employers cannot enter into contracts that are illegal.  Under the Texas Free Enterprise and Antitrust Act, “every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.”  Non-competition agreements that are reasonable and are designed to protect a legitimate business interest are an exception to the rule.  Any other restraint in an employment agreement that prohibits an at-will employee from leaving his or her current employer or restricts such employee’s ability to sell his or her skills in the marketplace is likely to violate the Texas Free Enterprise and Antitrust Act.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries. If you are a party to a dispute involving a noncompete agreement in Texas, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Can an employer require employees to repay training costs in Texas?

GiveBack-1000x360Earlier this year, the Second Court of Appeals ruled that an employee had to repay 1/3 of his salary to the employer as a reimbursement for training costs when he decided to leave.  The employee argued that the reimbursement agreement contained in his offer letter was unconscionable (legal term for “patently unfair”) and against public policy, but the Court of Appeals rejected both of these arguments in upholding the trial court’s award.

In Sanders v. Future com, Ltd., Sanders signed an offer letter from Future com that stated that he would be responsible for repaying the company for any training provided to him by Future com if he voluntarily left the company within one year after completing such training.  The repayment included travel expenses and “salary paid for study or course time.”  Sanders left Future com within twelve months of receiving certain training but refused to repay $4,003.39 in travel costs and expenses and $34,476.96 in salary that Future com paid Sanders while he was being trained.  The company sued him for breach of the employment agreement.

Sanders argued that the training reimbursement provision was not enforceable for a host of different reasons, but most notably, because it was unconscionable and against public policy.   The Court of Appeals rejected both of the reasons findings that:

  1. The repayment provision was meant to protect the company from the loss of Sanders’ employment before it had the opportunity to recoup its costs from training him.
  2. The company had a legitimate interest in making sure that it was not training employees for its competitors. 
  3. The company did not have to show that it actually suffered loss form Sanders’ departure. 
  4. The repayment provision was clear and understandable and was not hidden so as to create an “unfair surprise” for Sanders.
  5. Since training repayment provisions have been found to serve public good, this provision was not against public policy. 

TexasBarToday_TopTen_Badge_VectorGraphicTAKEAWAY FOR EMPLOYERS: Generally, training repayment provisions in employment agreements are enforceable in Texas.  Employers should make sure that such clauses are written in a clear and understandable manner and are not hidden within employment contracts.   

When determining the parameters of the reimbursement policies, companies should make sure that they comply with the Texas Texas Free Enterprise and Antitrust Act of 1983, which prohibits the restraint on trade.  In the case above, it appears that the company provided significant amount of training that took up to 1/3 of employee’s working time.  In such circumstances,  a reimbursement clause may be more enforceable than where a company provided minimal training.  Thus, when drafting a training reimbursement policy or agreement, it is best to consult with a qualified attorney to make sure that it is enforceable.

Leiza represents companies in business and employment litigation.  If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

When Stopping Competition with A Temporary Injunction, It Pays To Be Precise

ArcherEven the best non-disclosure and non-competition agreements are not worth anything if not enforced correctly. A lot of times a company rushes to court asking the judge to stop a former employee or his new employer from using the company’s confidential information or soliciting its customers based on the agreements that the former employee had signed with the company.    

However, in an attempt to obtain quick relief at the courthouse, companies often end up using formulaic and boiler-plate language that is supposed to cover every possible violation such as: 

  • Plaintiff asks the Court to prohibit Defendant from soliciting or conducting business with Plaintiff’s customers or
  • Plaintiff asks the Court to restrain Defendant from using the company’s confidential information or trade secrets 

Such requests, while appearing very reasonable at first blush, are often rejected by the courts as not being specific enough to let defendants know what they can and cannot do. For example, how is the defendant supposed to know who the company’s customers are, especially, if there are thousands of them? Or, if the order does not define trade secrets, how can the defendant know what is it that he is prohibited from using or disclosing? 

Defining the restrictions on competition in a precise manner while covering all possible violations is key to a successful injunction; however, the required degree of specificity may very from court to court. For example, recently, a court of appeals in Super Starr Int’l, LLC, et al v. Fresh Tex Produce, LLC, et al., dissolved an injunction issued by the trial court and remanded (sent) the case back to the trial court instructing it to reissue the temporary injunction order that defines “soliciting” not to include mass advertising, as well as redraft restrictions by defining “customers,” “accounts,” “trade secrets” and “confidential information.” 

BOTTOM LINE: When seeking a temporary injunction in a case involving unfair competition, non-compete or non-disclosure agreement breaches, shooting for the moon so you can land on the stars is not a good approach.  Rather, the party seeking an injunction should aim as closely as possible at the particular star on which it wants to land.   

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. For a consultation regarding a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

The Biggest Myth About Non-Compete Agreements

Most of the time, when I tell people that I deal with non-compete agreements, their initial reaction is, “but those are not enforceable in Texas, right?”.  Often, that statement is followed by, “but Texas is the right-to-work state, so a company cannot prohibit me from working for whoever I want, right?”.  When I try to explain that non-competes in Texas are enforceable and that being a right-to-work to state has nothing to do with a company’s ability to put non-compete restrictions on key employees, I often get incredulous stares.  So, for all the skeptical minds out there, here’s a map showing which states enforce non-compete agreements:

NCJC-BRIEF-Non-compete-Agreements-KEEPING-SECRETS_Page_5-map-1000x520

You will see from this map (created by Beck Reed Ridden) that only three states in the entire country – California, North Dakota, and Oklahoma – do not enforce non-compete agreements of any sort.  The rest of the states, including Texas, enforce such agreement or are undecided on that issue, which means they could enforce them given the right circumstances.

BOTTOM LINE:  In Texas, non-compete agreements are enforceable if they meet certain requirements and contain reasonable restrictions on the term, geographic scope and the scope of the restrained activities. Companies should take advantage of this legal tool available to them and make sure that their employment agreements with key employees have properly drafted non-compete clauses that protect their good will, confidential information, and trade secrets.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries. If you are a party to a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108. 

A Texas Case Demonstrates Why Using Stock Non-Compete Agreements May Backfire

picLast month, a Texas Court of Appeals denied an insurance agency’s application for a temporary injunction against its former President because it held that the non-compete agreement, as written, did not restrict the President from competing. The agency tried to enforce the non-compete and non-solicitation agreement to prevent the President from soliciting the agency’s clients for the purpose of selling or marketing any products or services that would compete with the agency, and it was able to obtain a temporary restraining order (TRO).  However, the trial court refused to convert the TRO into a temporary injunction.

The reason the company lost at the temporary injunction hearing is because both the non-compete and non-solicitation clauses in the agreement stated that the President could not compete with or solicit the agency’s clients “during the term of CMC Account Development Sub Agent Agreement, and for a period of two (2) years after the termination of the Agreement.”  However, the agency’s representative and the President both testified that he was never a sub agent (i.e. sales person) for the agency and that he did not have a CMC Account Development Sub Agent Agreement.  

Basically, the non-compete and non-solicitation restraints were tied to the length of a non-existent agreement between the agency and the President. In most likelihood, the language was left over from the standard contract form that the agency used for its sales representatives, and was included in the President’s agreement due to oversight.  As the result, the company was unable to stop the President from competing. 

TexasBarToday_TopTen_Badge_VectorGraphicTakeaway:  This case demonstrates why the  companies should conduct an audit of their non-compete and non-solicitation agreements at least once a year to make sure that (1) the agreements are enforceable, (2) they have a legible copy of the agreements signed by both parties, and (3) the agreements will adequately protect the company if they have to be enforced. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete dispute, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

White House Calls on States to Ban or Limit Non-Compete Agreements


us-whitehouse-logoOn Tuesday, the White House issued a call to action to state policymakers to do the following:

1.  Ban non-compete clauses for categories of workers, such as workers under a certain wage threshold; workers in certain occupations that promote public health and safety; workers who are unlikely to possess trade secrets; or those who may suffer undue adverse impacts from non-competes, such as workers laid off or terminated without cause.

2.  Improve transparency and fairness of non-compete agreements by, for example, disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted (because an applicant who has accepted an offer and declined other positions may have less bargaining power); providing consideration over and above continued employment for workers who sign non-compete agreements; or 2 encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work.

3.  Incentivize employers to write enforceable contracts, and encourage the elimination of unenforceable provisions by, for example, promoting the use of the “red pencil doctrine,” which renders contracts with unenforceable provisions void in their entirety.

This “State Call to Action on Non-Compete Agreements” comes on the heels of the White House and Treasury reports issued earlier this year that highlighted the fact that non-compete agreements impact approximately 30 million – nearly one in five – US workers, including roughly one in six workers without a college degree. 

Some states have already passed legislation limiting the use of non-compete agreements. For example, Hawaii banned non-compete agreements for technology jobs last year; New Mexico passed a law prohibiting non-competes for health care workers; and Oregon and Utah have limited the duration of non-compete arrangements.  Other states, like Massachusetts, have tried to implement similar measures this year but were unable to do it (yet). 

Does this mean that non-compete agreements in Texas will soon go away? There is no indication of that happening in the near future, however, the 85th legislative session in Texas will begin on January 10, 2017, and we will monitor introduction of any bills that may curtail or ban non-compete agreements in light of the trend. 

TexasBarToday_TopTen_Badge_VectorGraphicOf course, since the above call of action comes from the current White House, the outcome  of the national elections will probably affect whether this call will carry over to the new administration.  Given Trump’s affinity for non-compete agreements, should he be elected, the current White House policy regarding such agreements may experience a 180-degree turn.  

Stay tuned for further developments in Texas in 2017 . . .

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.