Enforcing Covenants Not To Compete: Employers Are On A Winning Streak
The Texas Supreme Court just made it easier for employers to stop former employees from competing against them. In Marsh USA, Inc. v. Cook, the Texas Supreme Court held that stock options given to an employee are sufficient consideration for enforcement of a non-compete agreement because the stock options are reasonably related to the company’s interest in protecting its goodwill. This decision continues a recent trend in which the Texas Supreme Court has repeatedly engaged in analysis that favors upholding the enforceability of non-compete agreements. In reaching its decision in Marsh USA, the court concluded that the Texas legislature’s purpose in passing the controlling statute (the Covenants Not to Compete Act) was to expand the enforceability of non-compete provisions, not restrict their enforceability. With that premise in mind, the court also stated that there is no requirement under Texas law that an employee receive consideration for the non-compete agreement prior to the time the employer’s interest in protecting its goodwill arises. This continues the court’s recent trend of rejecting technical reasons for finding a non-compete provision to be unenforceable.
This decision tilts the playing field in favor of employers seeking to enforce covenants not to compete. There will still be challenges based on the unreasonableness of the restrictions (duration, activity, geographical area) required by a non-compete agreement, but this decision signals that Texas courts will be more inclined to find that a non-competition provision is enforceable.