There is a lot of confusion out there about whether non compete agreements are enforceable in Texas. Some believe that they are never enforceable, others think that they always are. The truth is, whether a non compete agreement in Texas is enforceable depends on a variety of factors, including: (1) the specific language of the non compete clause in question and (2) the facts surrounding the relationship that the non compete addresses. Slightly different standards and approaches apply when it is a non competition clause in a business v. business transaction or a similar clause in an employer v. employee situation. The summary of the appellate courts’ decisions involving non compete issues in 2014 shows just how differently the chips fall depending on the particular facts of each case.
And the award for the most active court in the non compete arena goes to…
In 2014, Texas Courts of Appeals addressed various non-compete clauses 22 times. One case involving a non-compete dispute even made it all the way to the Texas Supreme Court. Out of the fourteen appellate courts in Texas, the most active court on the issue of non compete agreements was the First Court of Appeals in Houston, which lead the way with 8 opinions involving non-compete clause issues, followed by the Fifth Court of Appeals (Dallas) and the Fourteenth Court of Appeals (also in Houston) with 4 cases each.
Temporary injunctions …when dotting the “I”s and crossing the “T”s really counts…
Out of 22 cases involving non-compete issues, nine were interlocutory appeals from either a grant or denial of a temporary injunction by lower courts. In four cases, the Courts of Appeals reversed the injunction order for failure to comply with Rule 683 of the Texas Rules of Civil Procedure. I have previously written about Rule 683 mandates here, here and here. Twice they uhpeld temporary injunctions and twice they reversed the trial courts’ denial of temporary injunctions. Only once did a Court of Appeals uphold a denial of a temporary injunction.
Thus, almost half of the appeals heard by the Texas appellate courts involved defendants arguing that the injunction order was not specific enough for them to know what they were prohibited from doing, and the courts of appeals agreeing with them, which is why knowing what to ask for when seeking an injunction is as important as having a well-drafted non-compete to begin with.
Non competes …so who has them?
The non-compete agreements challenged on appeal in 2014 spanned a wide variety of industries and involved all levels of employees – from high-level directors and CEOs to lower level blue collar employees. In this limited pool of cases, the non-competes were most often enforced against those in a sales position, but included the following types of employees: insurance brokers; surgical assistants; CEO of a company that manufactured, sold, and rented frac valves; sales associates for an electricity provider; oil & gas refinery equipment inspector; CFO of an energy corporation; a doctor; directors of a solar power products company; an IT department supervisor; tax and research consultants; VP of an apparel company; VPs of a building manufacturer; sales manager for a manufacturer of heat exchangers; sales agent for a company that sold lumber products; mortgage loan officers; marketing director for a court reporting company; a pathologist; a sales agent for a company that sold stucco and masonry materials; insurance sales agent; geologist; a sales agent for a manufacturer of specialty components used in offshore oil and gas drilling and production; and a sales agent for a company that sold oilfield service equipment. This shows that non compete agreements are not limited to particular industries in Texas.
So, what’s going to happen in 2015?
This is one area of law that will continue to be hotly disputed in 2015 as economy picks up and more employees make lateral moves or decide to open their own business. The challenge for business owners in 2015 will be to find the balance between protecting their confidential information and the resources invested in employees and allowing such employees to earn a living after their departure. The variety of the outcomes on the appellate level indicates that the courts’ analysis of non compete agreements in Texas is very fact specific and often hinges upon the specific language of the agreement. The employers should review their non competes, update them, and institute hiring and termination polices that are meant to maximize the effectiveness of such agreements. And remember that while not every business employee should be subject to a non compete agreement, the key level personnel’s employment contracts should definitely include non compete and non disclosure clauses.
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.