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New Changes to Texas' Non-Compete Agreement Law
In Texas, non-compete agreements are enforceable if supported by consideration, and now, companies in Texas can require employees to sign covenants not to compete before they are offered stock options.
September 10, 2011 /Human Resources PR News/ -- A recent Texas Supreme Court decision will bring some changes to how businesses may formulate non-compete agreements.
In Texas, the central question of whether a non-compete agreement is enforceable is whether or not the agreement is supported by proper consideration. When interpreting the Texas non-compete agreement statute, the court in Marsh USA v. Cook determined that consideration reasonably related to an interest worth protecting, such as confidential information, goodwill or trade secrets, is sufficient to create an enforceable non-compete agreement.
Marsh USA argued that offering stock options to its employees posed a risk to its company secrets - namely customer names and developed customer relationships - and thus the company could require an employee to sign a non-compete agreement before handing over the stock options. The court agreed, opening the door for other companies to argue the same.
Before the suit reached the Texas Supreme Court, it had traveled through both the trial court and appeals court, both of which agreed with plaintiff Rex Cook's argument. Cook claimed that Marsh USA's non-compete agreement was not enforceable because stock options have not previously been considered company secrets or special training. The decisions of the trial and appeals courts were overturned by the Supreme Court.
Now, companies in Texas can require employees to sign covenants not to compete before they are offered stock options. In the future, the challenge for the courts will be determining what kinds of financial incentives may also be covered under the law.
It is highly recommended that any business owner who considers drafting a non-compete agreement seek the advice of an experienced business attorney. Conversely, an employee that wishes to assess the validity of a non-compete agreement may also find consulting with a business attorney helpful.
Article provided by John McDuff Attorney at Law
Visit us at www.johnmcduff.com/
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