New Ruling Benefits Texas Employers' Ability To Enforce Non-Compete Covenants

Texas employers will now have an easier time enforcing their noncompete agreements in court in light of a new Texas Supreme Court decision, Alex Shushunoff Management Servs, L.P. v. Johnson, 50 Tex. Sup. Ct. J. 44 (Oct. 20, 2006). The long awaited decision was issued on October 20, 2006, and it provided some much-needed guidance on steps employers should take to maximize the potential that their non-compete agreements will be enforced in court.

Previously, there was a requirement that the employer provide the employee with confidential, trade secret information or specialized training at the time of entering into the agreement. This new ruling does away with the contemporaneous requirement. Although it is still necessary for the employer to promise to, and to actually provide, that kind of information, it is no longer necessary for the exchange to take place the instant the agreement is signed.

In addition, this new decision paves the way for employers to enter into non-compete agreements with existing employees. Thus, non-competes can now be entered into at virtually any phase in the employment relationship. Once again, proprietary and confidential information and/or specialized training must serve as the appropriate exchange promised or given by the employer to support the agreement by the employee not to compete.

In light of Sheshunoff decision, employers should be sure to take certain steps with respect to their non-compete agreements. Employers should be sure to provide a promise within the agreement that they will provide the employee with confidential information belonging to the company. Part of the agreement should be the return promise by the employee not to disclose such confidential information to any third parties either during the term of the agreement or thereafter. Such confidential information should also be described within the non-compete agreement. In addition, to the extent the employer provides any specialized training, such training should be tapped as part of the information that the employee agrees not to disclose. Finally, at some point during the employment relationship, the employer must actually share its confidential information with the employee as promised. If employers follow these steps, such will aid in enforceability of the agreement.

This electronic update is an advisory and not intended to replace legal counsel on employment matters.