Wednesday, March 10, 2010

Termination of At-Will Employment Does Not Invalidate Non-Compete (Drummond American, LLC v. Share Corp.)

Most lawyers and judges would agree that involuntary termination of employment makes it harder to enforce a restrictive covenant. I wrote a law review on this subject some years ago, outlining different approaches courts across the country have taken on this issue. The law is not uniform by any means, and the cases are hard to reconcile.

In a recent federal district court case from (surprise!) Texas, the court held involuntary termination did not invalidate a non-compete clause. The court did not seem to graft onto this rule any particular standard of good faith (which other courts have done), instead holding that the method by which employment ended was simply not relevant. Remember: this is Texas we're talking about...

My advice to clients is that involuntary termination (without cause, of course) usually won't affect the validity of an activity restraint concerning solicitation of customers, recruitment of fellow employees, or use of proprietary information. It may, however, cause a court to rethink the equities of enforcing a general non-compete clause. Prohibiting someone from working in his or her line of work is fundamentally different than dictating what accounts he or she can solicit.


Court: United States District Court for the Eastern District of Texas
Opinion Date: 3/8/10
Cite: Drummond American, LLC v. Share Corporation, 2010 U.S. Dist. LEXIS 20582 (E.D. Tex. Mar. 8, 2010)
Favors: Employer
Law: Texas

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