Non-Competition Agreements
Texas Lawyer In-House Counsel Summit
September 24, 2015
ELLISON • KELLER
A T T O R N E Y S A T L A W
5120 Woodway Dr., Suite 6019
Houston, Texas 77056
713-266-8200
1
Common-law Approach – DeSantis v. Wackenhut
“An agreement not to compete is in restraint of trade and therefore
unenforceable on grounds of public policy unless it is reasonable.”
DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990).
A “reasonable” agreement not to compete:
(1) must be ancillary to an otherwise valid transaction or relationship
(e.g. purchase and sale of a business and employment
relationships);
(2) must not be greater than necessary to protect the promisee’s
legitimate interest (e.g. business goodwill, trade secrets, and other
confidential or proprietary information) – meaning that the extent of
the agreement must be limited appropriately as to time, territory,
and type of activity; and
(3) the promisee’s need for the protection must not be outweighed by
either the hardship to the promisor or any injury likely to the public.
Whether an agreement not to compete is a reasonable restraint of trade is
a question of law for the court.
2
The Texas Non-Compete Act 1989
Statutory Framework.
• Found in The Texas Business & Commerce Code, Chapter 15,
Monopolies, Trusts and Conspiracies in Restraint of Trade,
The Texas Free Enterprise and Antitrust Act of 1983.
• Amended, effective August 28, 1989, by the addition of
Subchapter E, Covenants Not to Compete.
3
The Texas Non-Compete Act – Enforceability
Under Section 15.50(a), a covenant not to compete is
enforceable:
(1) if it is ancillary to or part of an otherwise enforceable
agreement at the time the agreement is made, and
(2) to the extent that it contains limitations as to time,
geographical area, and scope of activity to be restrained
that are reasonable and do not impose a greater
restraint than is necessary to protect the goodwill or
other business interest of the promisee.
TEX. BUS. & COM. CODE § 15.50(a).
4
The Texas Non-Compete Act – Physicians
Non-competes are enforceable against licensed physicians if the
covenant:
(1) does not deny the physician access to a list of his patients seen or
treated within one year of termination of the contract or
employment;
(2) provides for access to medical records of the physician's patients
upon authorization of the patient;
(3) provides for a buy out of the covenant by the physician at a
reasonable price set by agreement, or failing agreement, by
arbitration;
(4) provides that the physician will not be prohibited from providing
continuing care and treatment to a specific patient or patients
during the course of an acute illness even after the contract or
employment has been terminated.
The above does not apply to a physician's business ownership interest in a
licensed hospital or licensed ambulatory surgical center.
TEX. BUS. & COM. CODE § 15.50(b), (c).
5
Ancillary to an Otherwise Enforceable Agreement
To prove breach of a covenant not to compete, the employer
must show the covenant was:
(1) ancillary to or part of an otherwise enforceable
agreement,
(2) at the time the agreement was made.
TEX. BUS. & COM. CODE § 15.50(a); Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 849 (Tex. 2009); Alex
Sheshunoff Mgmt Servs, L.P. v. Johnson, 209 S.W.3d 644, 648
(Tex. 2006).
6
Ancillary to an Otherwise Enforceable Agreement
A covenant is ancillary to or part of a separate, enforceable agreement if:
(1) the consideration given by the employer in the separate agreement
gave rise to the employer’s interest in restraining the employee
from competing, and
(2) the covenant not the compete was designed to enforce the
employee’s consideration or return promise in the separate
agreement.
Mann Frankfort Stein & Lipp Advisors, Inc., 289 S.W.3d at 852 (Tex. 2009);
see also Alex Sheshunoff Mgmt., 209 S.W.2d at 649 (An employer’s
consideration in the separate agreement gives rise to its interest in
restraining the employee from competing if (1) the consideration is in
relation to the employer’s interest, and (2) the employer’s interest is
worthy of protection.).
7
Ancillary to an Otherwise Enforceable Agreement
Consideration directly related to the employer’s interest.
• Stock options held to be consideration that was reasonably related to
the business interest sought to be protected (good will). TEX. BUS. &
COM. CODE § 15.50 requires that there be a nexus between the covenant
not to compete and the interest being protected. TEX. BUS. & COM. CODE
§ 15.50(a). Marsh United States, Inc. v. Cook, 354 S.W.3d 764, 779 (Tex.
2011).
• Mutual promise to give 30 days’ written notice before terminating
employment was not related to protecting the interest employer sought
to protect through a non-compete (company’s good will and customer
relationships). If the non-illusory promise is not related to the interest
the employer is trying to protect, the covenant not to compete is not
ancillary to or part of the otherwise enforceable agreement. Donahue v.
Bowles, Troy, Donahue, Johnson, Inc., 949 S.W.2d. 746, 751-52 (Tex. App.
– Dallas 1997, writ denied).
8
Ancillary to an Otherwise Enforceable Agreement
Protectable interests.
• Business good will. Alex Sheshunoff Mgmt Servs., 209 S.W.3d at 649.
• Confidential or proprietary information. Light v. Centel Cellular Co., 883
S.W.2d 642, 647 & n. 15 (Tex. 1994).
• Customer information. Gallagher Healthcare Ins. Servs. v. Vogelsang, 312
S.W.3d 640 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (citing
Martin v. Credit Prot. Ass'n, Inc., 793 S.W.2d 667, 670 n.3 (Tex. 1990);
DeSantis, 793 S.W.2d at 681-82.
9
Ancillary to an Otherwise Enforceable Agreement
The covenant must be designed to enforce the employee’s consideration
in the separate agreement.
• The agreement must be designed to enforce the return promises made
by the employee.
• An implied promise is as binding on the parties as a promise expressly
stated in the documents.
Gallagher Healthcare Ins. Servs. v. Vogelsang, 312 S.W.3d at 647 (citing Hall
v. Hall, 158 Tex. 95, 308 S.W.2d 12, 15 (Tex. 1957); Adams v. Big Three
Indus., Inc., 549 S.W.2d 411, 415 (Tex. Civ. App.—Beaumont 1977, writ ref'd
n.r.e.); NHA, Inc. v. Jones, 500 S.W.2d 940, 945 (Tex. Civ. App.—Fort Worth
1973, writ ref’d n.r.e.).
10
Ancillary to an Otherwise Enforceable Agreement
The covenant must have been made when the separate agreement was
made.
In Light v. Centel Cellular Co., 883 S.W.2d 642 (Tex. 1994), the Texas
Supreme Court held that an at-will employee who signs a non-compete was
not bound by the agreement if at the time the agreement was made the
employer had no corresponding enforceable obligation.
Later, in Alex Sheshunoff Mgmt Servs, L.P. v. Johnson, 209 S.W.3d 644, 649
(Tex. 2006), the Court modified its holding in Light, by holding that a
covenant not to compete is not unenforceable merely because the
employer's promise is executory when made. The court in Scheshunoff held
that, if the agreement “becomes enforceable after the agreement is made
because the employer performs his promise under the agreement and a
unilateral contract is formed, the covenant is enforceable if all other
requirements under the Act are met.” Id. at 655.
11
The Texas Non-Compete Act – Procedures
Sec. 15.51 of the Act addresses the procedures and remedies in actions to
enforce covenants not to compete.
• Except as provided in Subsection (c) of this section, a court may award
the promisee under a covenant not to compete damages, injunctive
relief, or both damages and injunctive relief for a breach by the promisor
of the covenant.
TEX. BUS. & COM. CODE § 15.51(a).
12
The Texas Non-Compete Act – Procedures
Burdens of Proof.
• If the primary purpose of the agreement to which the covenant is ancillary is to
obligate the promisor to render personal services, for a term or at will, the
promisee has the burden of establishing that the covenant meets the criteria
specified by Section 15.50.
• If the agreement has a different primary purpose, the promisor has the burden
of establishing that the covenant does not meet those criteria.
• For the purposes of this subsection, the "burden of establishing" a fact means
the burden of persuading the triers of fact that the existence of the fact is more
probable than its nonexistence.
TEX. BUS. & COM. CODE § 15.51(b). Note: The Act was amended in 1993 in response
to court decisions “to make clear that covenants not to compete were applicable to
at-will employment situations and that the statute prevailed over contrary common
law.” Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006).
13
The Texas Non-Compete Act – Procedures
Reformation and limitation on relief to the employer.
• If the covenant is found to be ancillary to or part of an otherwise enforceable
agreement
• but contains limitations as to time, geographical area, or scope of activity to be
restrained that are not reasonable and impose a greater restraint than is
necessary to protect the goodwill or other business interest of the promisee,
• the court shall reform the covenant to the extent necessary to cause the
limitations contained in the covenant as to time, geographical area, and scope of
activity to be restrained to be reasonable and to impose a restraint that is not
greater than necessary to protect the goodwill or other business interest of the
promisee and enforce the covenant as reformed,
• except that the court may not award the promisee damages for a breach of the
covenant before its reformation and the relief granted to the promisee shall be
limited to injunctive relief.
TEX. BUS. & COM. CODE § 15.50(c) -- part 1.
14
The Texas Non-Compete Act – Procedures
Relief to the promisor.
• If the primary purpose of the agreement to which the covenant is ancillary is to
obligate the promisor to render personal services, and the promisor establishes
that
(1) the promisee knew at the time of the execution of the agreement that the
covenant did not contain limitations as to time, geographical area, and
scope of activity to be restrained that were reasonable,
(2) the limitations imposed a greater restraint than necessary to protect the
goodwill or other business interest of the promisee, and
(3) the promisee sought to enforce the covenant to a greater extent than was
necessary to protect the goodwill or other business interest of the promisee,
then the court may award the promisor [former employee] the costs, including
reasonable attorney's fees, actually and reasonably incurred in defending the
action to enforce the covenant.
TEX. BUS. & COM. CODE § 15.50(c) -- part 2.
15
Temporary Injunctive Relief
Grounds for injunctive relief.
• An employer suing for temporary injunctive relief on a non-compete
must plead and prove
(1) a cause of action against the defendant;
(2) a probable right to the relief sought; and
(3) a probable, imminent, and irreparable injury in the interim.
Dickerson v. Acadian Cypress & Hardwoods, Inc., No. 09-13-002990-CV,
2014 Tex. App. LEXIS 3889, at **7-8 (Tex. App.—Beaumont Apr. 10, 2014)
(setting out the test for temporary injunctive relief in an action to enforce a
non-compete); Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002);
Tranter, Inc. v. Liss, No. 02-13-00167-CV, 2014 Tex. App. LEXIS 3398, *19
(Tex. App.—Fort Worth March 27, 2014, no pet. hist.); EMSL Analytical, Inc.
v. Younker, 154 S.W.3d 693 (Tex. App.—Houston [1st Dist.] 2004, no pet.)
(fear of possible injury is not sufficient to support issuance of a temporary
injunction).
16
Permanent Injunctive Relief
Preemption of common law for permanent injunctive relief.
• The Texas Covenants Not to Compete Act preempts
common-law requirements for permanent injunctive relief.
Tranter, 2014 Tex. App. LEXIS 3398, at *21.
17
Injunctive Relief – Procedure
Texas Rules of Civil Procedure 680 -693.
• The Texas Rules of Civil Procedure apply.
• Rule 683 requires that the trial court state the reason for granting a
temporary injunction within the order granting the relief, including why
injury will be suffered if the interlocutory relief is not entered. Slate v.
Cook United, Inc., 464 S.W.2d 105, 105 (Tex. 1971); Transp. Co. of Tex. v.
Robertson Transps., Inc., 261 S.W.2d 549, 553 (Tex. 1953).
• The requirement is mandatory. Kotz v. Imperial Capital Bank, 319 S.W.3d
54, 56 (Tex. App.—San Antonio 2010, no pet.).
• Non-compliance with Rule 683 renders the injunction void, not merely
voidable. In re Chaumette, No. 01-13-00957-CV, 2014 Tex. App. LEXIS
13799, *14 (Tex. App.—Houston [14th Dist.] Dec. 23, 2014, orig.
proceeding); In re Krueger, No. 03-12-00838-CV, 2013 Tex. App. LEXIS
5984, *9 n.7 (Tex. App.—Austin May 16, 2013, orig. proceeding); In re
Garza, 126 S.W.3d 268, 271-73 (Tex. App.—San Antonio 2003, orig.
proceeding).
18
Injunctive Relief – Procedure
Specificity Requirements.
The court’s order granting injunctive relief must be sufficiently specific such that it
would be enforceable in an action for contempt – that is, can the enjoined party
determine from the face of the injunction what conduct would violate the order.
• In re Krueger, No. 03-12-00838-CV, 2013 Tex. App. LEXIS 5984, **23-24 & n.6
(Tex. App.—Austin May 16, 2013, no pet.) (restrictions that failed to reasonably
identify the individuals or organizations that the enjoined parties were
prohibited from contacting violated Rule 683).
• Computek Computer & Office Supplies, Inc. v. Walton, 156 S.W.3d 217 (Tex.
App.—Dallas 2005, no pet.) (the “injunction itself must provide the specific
information as to the off-limits clients, without inferences or conclusions, or, in
this case, implied references to other records Computek might have.”).
• But see: Safeguard Business Systems, Inc. v. Schaffer, 822 S.W.2d 640 (Tex. App.—
Dallas 1991, no pet.) (finding it was not “unreasonable to assume that he who is
sought to be enjoined is sufficiently familiar with the employer’s business and its
customers to avoid violating the injunction.”); Amalgamated Acme Affiliates, Inc.
v. Minton, 33 S.W.3d 387, 397-98 (Tex. App.—Austin 2000, no pet) (list of the
advertisers attached to order).
19
Bond on Injunction
Setting the bond.
• The court must fix the amount of security to be given by the applicant in
the order granting injunctive relief.
• Before the issuance of the temporary restraining order or temporary
injunction the applicant shall execute and file with the clerk a bond to
the adverse party, with two or more good and sufficient sureties, to be
approved by the clerk, in the sum fixed by the judge, conditioned that
the applicant will abide the decision which may be made in the cause,
and that he will pay all sums of money and costs that may be adjudged
against him if the restraining order or temporary injunction shall be
dissolved in whole or in part.
TEX. R. CIV. P. 684.
• Be prepared to introduce argument and evidence on the appropriate
amount of the bond at the injunction hearing.
• The injunction will not be operative until the bond it posted in
accordance with the trial court’s order.
20
Scope of Injunctive Relief
Relief granted.
• The employer bears the burden of establishing that its non-compete
meets the criteria set out in Section 15.50(a) for reasonableness.
• If the employer fails to establish that the non-compete contains
reasonable limitations on time, geography, and scope, the trial court
should limit the scope of the temporary injunction to a geographic area
and scope of activity that are reasonable and that does not impose a
greater restraint than necessary to protect the goodwill or other interest
of the promise. See Tranter, Inc. v. Liss, No. 02-13-00167-CV, 2014 Tex.
App. LEXIS 3398, **30-31 (Tex. App.—Fort Worth March 27, 2014, no
pet.) (listing cases in which temporary injunctions were entered on less
restrictive terms than specified in the subject covenants). But see
Sentinel Integrity Solutions, Inc. v. Mistras Group, Inc., 414 S.W.3d 911,
921 (Tex. App.—Houston [1st Dist.] 2013) (“Reformation pursuant to
section 15.51 is a remedy to be granted at a final hearing, whether on
the merits or by summary judgment, not as interim relief.”).
21
Scope of Injunctive Relief
Considerations on Scope.
• “The breadth of enforcement of territorial restraints in
covenants not to compete depends upon the nature and
extent of the employer’s business and the degree of the
employee’s involvement.” Butler v. Arrow Mirror & Glass,
Inc., 51 S.W.3d 787, 793 (Tex. App.—Houston [1st Dist.] 2001,
no pet.) (emphasis added).
• In other words, the covenant “must bear some relationship
to the activities of the employee.” Id.
• “A covenant not to compete with a broad geographical scope
is unenforceable, particularly when no evidence establishes
the employee actually worked in all areas covered by the
covenant.” Id. at 793-94.
22
Scope of Injunctive Relief
Covenant unenforceable as written.
• “When applied to a personal services occupation, a restraint on client
solicitation is overbroad and unreasonable if it extends to clients with
whom the employee had no dealings during his employment.”
• The covenant in U.S. Risk prohibited the employee from being
“associated with, employed by, or financially interested in any business
operation which competes in the business currently engaged in by the
[employer] or any of its subsidiaries or affiliates.”
• The court there found the covenant was an unreasonable industry-wide
ban.
• The court further explained that since the restriction was not limited to
the type of business that Woods performed for his former employer, it
did not contain reasonable limitations as to the scope of activity to be
restrained. Id.
U.S. Risk Ins. Group, Inc. v. Woods, 399 S.W.3d 295 (Tex. App.—Dallas 2013,
no pet.).
23
Scope of Injunctive Relief
Covenants unenforceable as written.
• Garcia v. Oilfield Mud & Chem. Servs., Inc., No. 11-11-00315-CV, 2012
Tex. App. LEXIS 9465, *9 (Tex. App.—Eastland Nov. 15, 2012, no pet.)
(injunction was overly broad because it was not limited to customers
with whom the former employee had dealt while he was employed with
the plaintiff).
• Transperfect Translations, Inc. v. Leslie, 594 F. Supp. 2d 742, 754 (S.D. Tex.
2009) (a reasonable geographic scope “is generally considered to be the
territory in which the employee worked for the employer” and/or
tailored to prevent contact with clients with whom the employee had
contact).
• Gallagher Healthcare Ins. Servs. v. Vogelsang, 312 S.W.3d 640, 654 (Tex.
App.—Houston [1st Dist.] 2009, pet. denied) (restrictive covenants are
overbroad and unreasonable if they extend to clients with whom the
employment did not deal with during his employment).
24
Scope of Injunctive Relief
Covenants unenforceable as written.
• Poole v. U.S. Money Reserve, Inc., No. 09-08-137 CV, 2008 Tex. App. LEXIS
8257, *39 (Tex. App.—Beaumont Oct. 30, 2008, no pet.) (the trial court
abused its discretion in entering an industry-wide injunction against
former sales persons).
• Rimkus Consulting Group, Inc. v. Cammarata, 255 F.R.D. 417, 435 (S.D.
Tex. 2008) (“Texas courts have found that noncompetition covenants
that cover areas where the employee did not actually work . . . are
overbroad and unenforceable.”).
• Goodin v. Jolliff, 257 S.W.3d 341, 351-52 (Tex. App.—Fort Worth 2008, no
pet.) (holding that the subject non-compete was unenforceable because
it had “no limitation as to geographic scope whatsoever”).
25
Scope of Injunctive Relief
Covenants unenforceable as written.
• Leon’s Fine Foods, Inc. v. McClearin, No. 05-97-01198-CV, 2000 Tex. App.
LEXIS 1681, **6-8 (Tex. App.—Dallas March 15, 2000, pet. denied)
(restriction against employment “in any capacity in any business in the
United States that is in competition ‘in any manner whatever’ with” the
former employer was unenforceable).
• Curtis v. Ziff Energy Group, Ltd., 12 S.W.3d 114, 119 (Tex. App.—Houston
[14th Dist.] 1999, no pet.) (territory should be limited to the territory in
which the employee worked during his employment).
26
Damages – Promisee
Monetary relief available to the successful employer.
• “Except as provided in Subsection (c) of this section, a court may award
the promisee under a covenant not to compete damages, injunctive
relief, or both damages and injunctive relief for a breach by the promisor
of the covenant.” TEX. BUS. & COM. CODE § 15.51(a).
• In the event of reformation under § 15.50(c), the court may not award
the plaintiff damages for breach before reformation – relief will be
limited to injunctive relief.
• The plaintiff/employer is not entitled to an award of attorneys’ fees on
its claim for breach of the non-compete. Ginn v. NCI Bldg., Sys., No. 0112-00502-CV, 2015 Tex. App. LEXIS 8531 (Tex. App.—Houston [1st Dist.]
Aug. 13, 2015, no pet.) (“Under Section 15.51, an employee, not an
employer, is entitled to recover attorney’s fees in an action to enforce a
covenant not to compete.”).
27
Damages – Promisor
Wrongful injunction, malicious prosecution, and relief under § 15.50(c).
• If the injunction is set aside, the promisor may seek a recovery against
the bond for wrongful injunction. Damages for wrongful injunction are
limited to the amount of the bond.
• The promisor may also seek relief through an action for malicious
prosecution – either as a counter claim or a subsequently filed action.
Damages for a successful claim of malicious prosecution are not limited
to the amount of the bond.
• The promisor may also seek a recovery of fees under TEX. BUS. & COM.
CODE § 15.51(c). The award “falls within the trial court’s discretion and is
not mandatory.” Ginn v. NCI Bldg. Sys., No. 01-12-00502-CV, 2015 Tex.
App. LEXIS 8531, *101 (Tex. App.—Houston [1st Dist.] Aug. 13, 2015
(defendant failed to preserve error with proper jury charge for predicate
factual findings to support an award of fees under 15.51(c)).
28
Damages – Promisor
Wrongful injunction, malicious prosecution, and relief under § 15.50(c).
• Sentinel Integrity Solutions, Inc. v. Mistras Group, Inc., 414 S.W.3d 911
(Tex. App.—Houston [1st Dist.] 2013, pet. denied). Employee was an
inspector of oil and gas refinery equipment, supervising turnarounds
and inspections. The subject covenant not to compete restricted the
employee from working in any capacity he formerly served in with his
employer if it involved a customer that the employee called on while
with the company. The restricted area include four counties in Texas,
and locations in California, Utah, Louisiana, Pennsylvania, Colorado,
Wyoming, and Tinidad and Tobago, plus a 20 mile radius around all
customers’ jobsites and project facilities the employee had called on.
The covenant included an acknowledgement that the agreement was
reasonable and was no greater restraint than necessary. However, at
trial, the employer conceded on the last day of trial that the covenant
was overbroad as to geographic restriction. The jury awarded more than
$700K in fees, plus $200K in conditional appellate fees, to the employee
under TEX. BUS. & COM. CODE § 15.51(c).
29
Employee Defenses – Clean Hands
Equitable Defense of Clean Hands
• A party may not appeal to a “court of equity to enforce a provision in a
contract whose terms it had been the first to breach.” Carpenter v. So.
Props., Inc., 299 S.W. 440, 444 (Tex. App. 1927, writ ref’d)
• See also Scheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex.
2006); Chapman Air Conditioning, Inc. v. Franks, 732 S.W.2d 737, 740
(Tex. App.—Dallas 1987, no pet.)
• American Ship & Industrial Cleaning, Corp. v. Parrish, 596 S.W.2d 244
(Tex. App.—Houston [14th Dist] 1980, no writ) – Failure to pay employee
in accordance with an agreed schedule of commission and draw was
sufficient to avoid enforcement of a covenant no to compete du to
unclean hands.
• Vaughn v. Kizer, 400 S.W.2d 586, 598-90 (Tex. Civ. App.—Waco 1966, writ
ref’d n.r.e) – Reduction of former employee’s expense accounts was
“such wrongful conduct as to render appellee without clean hands”
precluding him from injunctive relief.
30
Recent Cases
• Parker v. Schlumberger Tech. Corp., No. 01-14-01018-CV, 2015 Tex. App. LEXIS
9761 (Tex. App.—Houston [1st Dist.] Sept. 117, 2015). The court held that the
trial court erred in entering a temporary injunction that did not include a
limitation on the duration of the restrictions, effectively extending indefinitely a
one-year post-employment period in the subject covenant.
• Tummala v. Total Inpatient Servs., P.A., NO. 01-14-00458-CV, 2015 Tex. App. LEXIS
9063 (Tex. App.—Houston [1st Dist.] Aug. 27, 2015). Concluding that the
defendant physician timely terminated his employment during an introductory
period and so was not bound by a non-compete. The tortious interference claim
predicated on the non-compete also failed.
• Weber Aircraft, L.L.C. v. Krishnamurthy, No. 4:12-CV-666, 2014 U.S. Dist. LEXIS
182850 (E.D. Tex. Dec. 11, 2014). Held that the defendant must show that the
employer knew that the restriction did not contain limitations as to time,
geography, and scope to recover attorneys fees under Section 15.51(c).
Distinquishes Kenyon and Sentinel Integrity as having found that the plaintiff
knew that the covenants were unreasonable in all three respects. But, this is not
apparent in Sentinel.
31
Recent Cases
• Kenyon Int’l Emergency Servs., v. Malcolm, No. 12-20306, 2013 U.S. App.
LEXIS 9704 (5th Cir. May 14, 2013). Affirming award of attorneys’ fees to
defendants under Section 15.51(c). Judge Hughes in his opinion granting
the fee award stated:
Kenyon knew when the agreements were signed that the
covenants were unreasonable. Kenyon's knowledge of the clause's
baseless expansionism can be inferred from its breadth. The same
covenant applied to two-day workers and multi-year ones equally.
That it is a worldwide restriction is open and obvious. That it
continues as long as the client has business with Kenyon is clearly
excessive. Kenyon knew what it taught people, where they had
worked, and what they did. Kenyon knew it was imposing total,
gratuitous limits on people whom it did not equip, train, or imbue
with its goodwill. The non-competition clause is unreasonable on
its face; Kenyon operated on no mistaken fact.
Kenyon Int'l Emergency, Servs. v. Malcolm, 2010 U.S. Dist. LEXIS
55283, **3-4 (S.D. Tex. June 7, 2010).
32
Practical Considerations
• Don’t over reach – tailor the non-compete to your industry and the
employee.
• Make sure the employee receives a copy of the agreement on signing.
• Remind the employee of his or her obligations during an exit interview.
• When hiring from a competitor, check with the candidates to see if they
are subject to a non-compete.
• If you are faced with enforcing a non-compete that you suspect may not
pass the reasonableness test in time, geography, and/or scope, consider
being the party to request the reformation and to limit your request for
temporary relief to something that will meet the reasonableness test -this may save time and money litigating reasonableness rather than
focusing on legitimate interests in protecting the company and will help
ensure that any order entered will be upheld on appeal.
33