Imagine a scenario where Company A hires Company B’s former employee. A few months go by and Company A receives a demand letter from Company B informing it that: (1) the former employee has a 2 year non-compete with Company B; (2) if Company A does not end its relationship with the employee it will be sued. (Assume the non-compete is enforceable.)
Being both pragmatic and litigation gun shy, Company A terminates the employee. The employee sues Company A claiming the termination violates public policy and seeks money damages. Ludicrous? No, it happened in California. California lawyer Laurie Rust had the following take on the case:
When confronted with a request or demand from a former employer to honor a non-compete agreement, California employers should not respond by terminating the subject employee unless they are confident that the non-compete agreement is actually enforceable under California law.
California law disfavors non-compete agreements whereas Texas permits them as long as they comply with certain conditions discussed here previously. I am not aware of any Texas precedent that would somehow subject an employer to liability for honoring a non-compete agreement. That being said, it will depend on the circumstances. Is the employee an at-will employee or does the employee have an employment agreement that would address the termination? What is the likelihood of the enforceability of the non-compete?
The California case certainly raises interesting issues. Texas employers should always determine whether a prospective employee has any agreements with his or her former or current employer (non-competes, non-solicits, confidentiality agreements etc.) that could impact future employment. If there is such an agreement try to determine whether it is enforceable. A little analysis up front can save time and money down the line.
