May 2010

                                       

 As has been widely commented on, the Texas Supreme Court will determine whether stock options can serve as the basis for an employee’s non-compete agreement.  The Dallas Court of Appeals, in Marsh USA v. Cook, ruled that options could not. 

A ruling that reverses the Dallas court could  have much wider ramifications:  What would the employment landscape look like if an employer could pay an employee to enter into a non-compete? Would employers like to require their sales force to enter into non-competes that would either: (1) guarantee continued employment; or (2) put a departing salesperson out of the market for a year?  Would an employee agree to an extra $10,000 signing bonus in exchange for signing a non-compete?

Texas courts do not like to analyze whether the "consideration" that forms the basis of a contract is sufficient, meaning the Court won’t review whether a business or person paid too much or too little for something.  Employers will always confront potential employees with different bargaining power.  A salesperson with a significant client base and track record of success may be able to demand a year of salary for a non-compete or not agree to enter into such an agreement.  The first year salesperson right out of college is in a little different position usually unable to demand anything. 

I’m not convinced the Texas Supreme Court will make the sweeping ruling some suggest, but if it does it could significantly alter employment relationships and the ability of employees to freely move from employer to employer.   How that would play out remains to be seen, but employers will certainly look to lock down employees with non-compete or non-solicitation agreements.