I get questions all the time about the enforceability of noncompetes in Texas. I have to respond in the most-irritating lawyer-like way possible: I say that the enforceability of any particular noncompete all depends on the language of the noncompete and the facts of the case. That response predictably results in a long period of silence.
There is ample Texas case law enforcing noncompetes against former employees to prevent former employees from competing. In these cases the employers successfully have demonstrated that there is a threat to the employers’ business interests through the disclosure of confidential information or damage to company good will. There also is a lot of seemingly irreconcilable Texas case law where the courts have refused to enforce noncompetes to prevent former employees from competing where the employers offered proof that former employees had confidential information and were in a position to use the confidential information to the employers’ detriment.
Legally speaking, Texas has a statute that allows an employer to enforce a noncompete when what would otherwise be a restraint on trade is necessary to protect a legitimate interest of the employer. In Texas, a legitimate interest of the employer could be (1) preventing the disclosure of confidential or proprietary information; or (2) protecting company good will. Contrary to what a lot of people believe, the enforceability of a noncompete is not dependent on the employer paying the employee compensation that is tied to the noncompete, and is independent from the reason that the employee’s relationship with the employer ended.
In my practical experience I have found that judges in general do not like noncompetes. They do not like the idea of putting a person out of work, unless the facts particularly justify the extraordinary step of entering a injunction. You can get a sense of the courts’ uneasiness with noncompetes in the Dallas Court of Appeals recent decision affirming a trial court’s denial of the employer’s request for a temporary injunction in BM Medical Management Service, LLC v. Turner.
Turner had a one-year noncompete that prohibited him from working in a competing business, soliciting BM Medical’s clients, recruiting or hiring BM Medical’s employees, or disclosing BM Medical’s confidential information. BM Medical fired Turner, and a month later he went to work for a competitor. Despite having access to BM Medical’s client list of over 1600 customers, the trial court denied BM Medical’s request for a temporary injunction to prevent Turner from soliciting BM Medical’s clients. The court found that BM Medical failed to prove that Turner “possessed, used or disclosed any confidential information and if failed to prove that Turner was soliciting its clients.” One BM Medical client did follow Turner to his new employer, but the Dallas Court of Appeals noted that this single client was a “good friend of Turner’s whom Turner had known before he went to work for BM Medical.”
Notably, BM Medical only sought to prevent Turner from contacting BM Medical’s clients (and not enforcement of the outright ban on any competition), and from disclosing BM Medical’s confidential information. But even limiting its request for relief was not enough to satisfy the court. Presumably the result would have been different if BM Medical had established that Turner actually solicited BM Medical’s clients, or if BM Medical had shown that the information that Turner had was particularly sensitive to BM Medical’s business interests.
Based on the court’s conclusion, I get the impression that neither the trial court nor the court of appeals thought that Turner was a threat to BM Medical’s business interests. So if you want to enforce a noncompete in Texas, here are some important considerations to maximize your chances of having the judge agree with you:
- Spell out for the judge the actual threat that the former employee poses to the business interests of the employer. The degree to which an employer wants to restrict a former employee from competing is directly related to the actual threat that the former employee poses to the business’s legitimate business interests. For example, a sales employee who is terminated for poor performance probably does not pose an actual threat to the employer’s existing sales.
- Explain to the judge what relief you need to address the actual threat posed by the former employee. The restrictions that the employer seeks to enforce against a former employee must be tied closely to the actual threat to the employer’s legitimate business interests. An employer’s desire to restrain all competition is not a legitimate business interest, and an outright ban on all competition everywhere rarely is closely tied to the actual threat posed by the former employee to the employer’s legitimate business interests.
- Judges do not like noncompetes. When asking for temporary relief, give the judge way to overcome this dislike of noncompetes by asking for the bare minimum of what you need to address the actual threat. If you can ask for relief that allows the former employee to continue to work, even better. As an example, courts seem more willing to restrict a former employee from soliciting actual clients with whom the former employee had contact as a result of the employer, but not so willing to restrict a former employee from soliciting any and all of the company’s customers regardless of whether the former employee knew about the customers.
And if you ask me if noncompetes are enforceable in Texas, I will probably say “It depends…”