Non-Compete Laws: News from Texas and Beyond…

The recent Texas Supreme Court non-compete decision has reversed years of favoring employees by limiting the circumstances under which these agreements are enforceable. Here is a digest of analysis on the Texas decision, advice on drafting non-competes, and regional reviews of the subject from lawyers on JD Supra:

Legal Analysis of the Texas Decision

Legal Alert: Texas Supreme Court Expands Enforceability of Covenants not to Compete (Ford & Harrison LLP)

“The Texas Supreme Court delivered its eagerly anticipated opinion in Marsh USA, Inc. v. Cook on June 24, 2011. The issue in Marsh: whether the employee’s exercise of stock options could constitute an interest sufficient to support his agreement not to compete. The Court held that it did, sparking new debate among practitioners about the extent to which employers may essentially buy employees’ agreement to covenant not to compete.” Read more »

Texas Supreme Court Makes Enforcement of Noncompete Agreements Easier for Employers (Morgan Lewis)

In Texas, non-compete agreements “…may be enforced only if they contain reasonable limitations with respect to geography, time, and scope of activity to be prohibited and only if they are ‘ancillary to or part of an otherwise enforceable agreement.’ Texas courts, as well as practitioners and employers, have struggled with this latter requirement. The Cook case represents a significant change in Texas law and a departure from the Texas Supreme Court’s previous analysis of noncompete agreements.” Read more »

Texas Supreme Court Upholds Enforceability of Covenants Not to Compete (Jackson Walker)

“For years, the conventional wisdom was that covenants not to compete in Texas were unenforceable. While never literally true, the difficulty in enforcement was highlighted by a series of Texas Supreme Court decisions between 1987 and 1994…Then after twelve years of silence on the issue, the Supreme Court of Texas waded into the murky waters of Light and introduced a new era of Texas judicial interpretation of non-competition covenants.” Read more »

Dust Off Your Non-Compete Agreement (Alan Bush)

“Texas courts now lean toward enforcing non-compete and non-solicit agreements. But they may push back on how far your agreement can go. Your restrictions must be reasonable. If you’ve demanded too much of your ex-employees, a court will ding you. The court will shave down or ‘reform’ your restrictions to make them reasonable.” Read more » 

Drafting, Enforceability and other Legal Considerations

Drafting Enforceable Non-Compete Agreements (McNees Wallace & Nurick LLC)

“If a business is considering having its employees sign a non-compete agreement, it should be aware that courts universally disfavor agreements which restrict an individual’s right to make a living. Such agreements arguably run contrary to the American ethos that a person should not be prevented from making the most of his or her opportunities. However, most courts, including Ohio courts, acknowledge a person’s right to bargain away certain freedoms, including the freedom to make a living, and will enforce such agreements to the extent they are reasonable.” Read more »

Non-Competes in Fixed Term Agreements: Special Care Required (Fisher & Phillips LLP)

“Special caution is required concerning restrictive covenants that are ancillary to employment agreements for a fixed term (as opposed to an employment agreement for an at-will employee). Whether such covenants may be enforced could depend upon: (1) written renewal of the employment agreement upon expiration; and/or (2) the inclusion of language expressly stating that restrictive covenants contained in the agreement survive termination of the agreement.” Read more »

Settling Non-Compete Cases: Postponing Battle for Another Day? (Fisher & Phillips LLP)

“The thought that a restrictive covenant set forth in a settlement agreement may be unenforceable may be hard to swallow. After all, a widely recognized incentive for settling cases is the opportunity to achieve finality while at the same time eliminating the risks inherently intertwined with litigation…But what happens if the former employee violates the settlement? At first glance, you might think that enforcement is a certainty because the employee consented to the reduced covenant in place of the previous covenant. Not so fast. Some courts see it differently.” Read more »

Are Your Non-Compete Agreements Enforceable? (Warner Norcross & Judd)

“While you may read your employment agreements and understand what you intended, a judge may not. In two recent cases, circuit courts examined non-compete agreements in light of entire employment contracts. The cases show that terms buried within a separate portion of an employment agreement might give the court a reason to decline to enforce your non-compete agreement.” Read more »

A Twist on Non-Compete Agreements: Don’t let Your Vendors and Customers Squeeze Your Margins (Bush Law Firm PC)

“With a non-compete agreement, you have a lighter burden of proof. Your non-compete might say: ‘No working with the Company’s customers or vendors in a position where the employee, directly or indirectly, has input on the prices paid to or by the Company.’ Instead of proving that what your ex-employee has done or might do with your secret playbook, you would show that his new job violates the non-compete.” Read more »

Lessons From Thomas’ English Muffins. Are your Company’s Secrets Safe? (Michaud-Kinney Group LLP)

“For over one hundred years, Thomas’ English Muffins has been making its english muffins with the famous “nooks and crannies.” Until this year, Thomas’ probably thought its secret to the muffin was safe. However, Chris Botticella, a former senior vice president for Bimbo Foods, the owner of Thomas’ English Muffins, is involved in a lawsuit with his former employer after he accepted a job with its competitor Hostess.” Read more » 

Regional Reviews

Non-Compete Agreements in North Carolina (Richard Prosser)

“The important take away from this holding is to understand that although certain elements of non-compete agreements are uniformly interpreted, others are context specific. As such, each agreement should be tailored to the specific employer-employee relationship.” Read more »

Look Before You Leap: Non-compete Law In Massachusetts (Todd & Weld LLP)

“All of the stakeholders that could be affected in any future debate on this topic — employees, employers, policymakers and attorneys — would be well-advised to take note of the substantial body of current Massachusetts law that already governs in this area and proceed with caution.” Read more »

CO Supreme Court Overturns Lucht’s Concrete – Non-Compete Agreements (Partly) Safe Again (Jones & Keller)

“The Colorado Supreme Court has reversed a lower court ruling in Lucht’s Concrete Pumping, Inc. v. Horner, and reinstated the status quo business practice of having eligible employees sign non-compete agreements without paying additional consideration.” Read more »

Noncompete News: Justice Department: Non-solicit Agreements Among High-Tech Employers Violate Antitrust Law (Ford & Harrison LLP)

“The Department of Justice’s (DOJ) Antitrust Division recently filed two complaints, along with proposed settlement agreements, in D.C. federal court alleging that no-solicit agreements among high-tech employers constituted unlawful restraints on trade in the market for highly-skilled employees in the technology sector.” Read more »

Pennsylvania Courts Must Consider Broader Circumstances When Determining Enforceability of Non-Compete Agreements (Beth Lincow Cole)

“In Missett v. Hub International Pennsylvania, LLC, the Pennsylvania Superior Court ruled that the circumstances of an employee’s termination alone are not sufficient to determine whether a non-compete agreement is enforceable. This decision reverses the previous trend of Pennsylvania courts to reflexively find non-competes unenforceable solely on the grounds that an employee was fired without cause.” Read more »

————-

Follow other Labor & Employment Updates on: Twitter | Facebook | LinkedIn | JD Supra