Keith Clouse, a Dallas, Texas noncompete attorney, explains how a recent Texas Supreme Court opinion radically changes Texas noncompete law. This summer, the Texas Supreme Court ruled that a covenant not to compete signed by an employee in consideration of stock options was enforceable because the company’s provision of stock options was reasonably related to the employer’s interest in protecting its goodwill. Marsh USA Inc. v. Cook, No. 09-0558 (Tex. June 24, 2011), available at http://www.supreme.courts.state.tx.us/historical/2011/jun/090558.htm.
Texas has long maintained strict requirements for enforcing noncompete agreements, but in recent years, courts have moved towards greater enforceability of noncompete agreements. Under Texas law, a noncompete agreement (or noncompetition agreement) is enforceable if it is reasonable as to time, scope, and geography and if the noncompete agreement is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.
The recent Texas Supreme Court ruling makes it easier for an employer to enforce a noncompete agreement. Previously, a noncompete agreement was enforceable only if the consideration given by the company “gave rise” to the company’s need for the noncompete agreement. For the most part, a company’s provision of confidential information or specialized training was the only consideration that would justify a noncompete agreement. Now, consideration that is reasonably related to an interest worthy of protection will satisfy this requirement.