compete in at-will employment relationships in Texas

Although non-compete covenants are restraints against trade, the Legislature provides they are enforceable if they comply with the criteria outlined in the Covenants Not to Compete Act, TEXAS BUSINESS & COMMERCE CODE § 15.50(a), et seq. This article traces how the Texas Supreme Court has interpreted those criteria between 1994 – 2009, the steps for crafting an covenant and the considerations given by courts in determining if it is enforceable, and the trend toward greater enforcement of such covenants.

For roughly twelve years, Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642 (Tex. 1994) governed interpretation of Section 15.50(a). Under Light's "blueprint," a non-compete covenant would be enforced so long as the employer made an enforceable promise to provide confidential information to its employee at the outset of the employment, and the employee reciprocally promised to keep the information confidential. The Court later acknowledged, however, that Light misinterpreted Section 15.50(a) in a manner that would cause most covenants to fail: the exchanged promises almost never would be enforceable at the outset of the employment, because either party could terminate the at-will employment prior to when its performance was due. Moreover, under the Light Court's misreading of the statute, an employer's future performance of its promises would not suffice.

The Court in Alex Sheshunoff Mgt. Serv. L.P. v. Johnson, 209 S.W.3d 644, 655 (Tex. 2006) not only corrected its misreading by holding future performance can satisfy the statute, but in Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009) recognized an employer's implied promise to provide confidential information complied. The Court continues to refine its analysis (as recently as December 2009), continuing a trend toward broader enforcement of covenants. – Eric Behrens