Non-Compete

Not Much in 2013

I kind of feel like a broken record when it comes to Texas non-compete development over the last few years. Since the Marsh opinion I have been anticipating more significant developments in the non-compete and post-employment covenant world as employers attempt to use different types of consideration as the basis for these types of agreements. We just haven’t seen those types of cases role through the lower courts but that is a slow process.

Regardless, employers will continue to use non-competes as employees continue to change jobs and new jobs are created. That fact will remain as there are always employment transitions. The beginning of the year is always a high turnover time period because end-of-year bonuses have been paid and employers are more apt to hire at the beginning of the year as opposed to the end.

So what am I focused on in 2014 – two things.   The first is the use of non-planning provisions in employment agreements. The second is the Texas legislature’s adoption of the uniform trade secrets act.  Today we address the anti-planning provision.

Anti-Planning Provisions

An anti-planning provision looks like this:

The Restricted Parties also agree during the Restricted Period not to acquire, own or have an ownership interest in, manage, operate, or be employed or engaged by, any person or entity that conducts or plans to conduct a business that is in Competition with the [Purchasing Company].

This comes from an employment agreement that the Dallas Court of Appeals confronted earlier in the year.  It provides yet another tool for employers to consider as part of their employment agreements.

Often times that employee will engage in what I will call “gray area” activities as they prepare to compete. This could mean many thing like: (1) preparing a website; (2) preparing a business entity; (3) maybe suggesting to current customers of an intention to move; (4) maybe discussing a potential new venture with current employees; and (5) preparing new business cards and stationery. Regardless, the point is Texas law permits employees to go a long way in terms of preparing to compete. But what if you had a provision in place that essentially said you could not engage in some of this conduct and that what often times falls within “gray areas” is contractually prohibited?

Then fast-forward to a non-compete lawsuit where the employer is seeking to impose a temporary injunction against a competing employee. Though the anti-planning provision may not be enforceable, but  at least the employer could point to its provisions and identify conduct that the employee violated as they prepared to compete.

As the court attempts to balance the equities, it will be faced with a situation where not only did the employee breach the post-employment covenants but he or she also breached their agreement at the time they were employed. Again, something for employers to consider.