Monday, April 27, 2009
Texas Court Finally Gets a Non-Compete Issue Right (Mann Frankfort v. Fielding)
Litigating a non-compete dispute in Texas is the equivalent of wading into an intellectual abyss.
Texas has enacted a non-compete statute that provides little in the way of guidance, but contributes greatly to attorneys' level of confusion. The particular provision of the statute that has wreaked judicial havoc concerns the requirement that a non-compete covenant be "ancillary to an otherwise enforceable agreement."
Texas courts seemed to ruminate for years over what this meant. Some of the confusion disappeared a few years ago when the Supreme Court of Texas issued its decision in Alex Sheshunoff Mgmt. v. Johnson, a case that marginally made some sense but left a key issue open.
The basic issue decided in Alex Sheshunoff was that for a covenant to be ancillary to an otherwise enforceable agreement, the employer's return promise to provide confidential information to the employee need not be fulfilled at precisely the time the employee promises not to compete. Previous decisions had yielded the bizarre rule that unless there was a simultaneous disclosure of confidential information to the employee at the time the contract was signed, the covenant was void entirely.
Alex Sheshunoff basically said the employer could eventually provide confidential information to the employee, and this would satisfy the ancillarity requirement.
The issue left unresolved was whether an implied promise to provide confidential information to the employee was sufficient. In Mann Frankfort v. Fielding, the Court said yes. Prior to this decision, the appellate cases came out both ways. Some held an implied promise was enough, while others disagreed. Unless the agreement was crystal clear that an employer had an obligation to provide the employee with confidential information, the employee had more than a decent argument the non-compete was illusory.
This seems to be the final step for Texas courts to move beyond this pedantic line of cases involving ancillarity.
Court: Supreme Court of Texas
Opinion Date: 4/17/09
Cite: Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009)