Non-Solicit

Happy New Year!

Last year the Texas Supreme Court altered the non-compete landscape in Marsh v. Cook.  As lower courts construe the opinion we will see what its impact is on employers and employees.  The takeaway from the opinion should be that employers will attempt to offer other forms of consideration, like stock options, signing bonuses, etc., in exchange for post-employment agreements like non-competes and non-solicits.  The days of limited non-competes/non-solicits based only upon the exchange of propriety information, trade secrets, or training appears to be over.  This means industries that typically do not use non-competes could.  That said, employers should be skeptical of the ramifications of the Marsh opinion until there is guidance from other courts.

Employers should be doing all they can to protect their business in 2012 from the departing employee.  The cold reality is in an economy short on jobs, potential employees will be more willing to sign non-compete agreements.  In addition to the run-of-the-mill non-compete, employers should also consider non-solicitation agreements, anti-raid provisions, and even a garden leave policy (all discussed here previously).

Besides post-employment covenants there are general day to day business practices that are a necessity.  True trade secrets need to be protected through restricted access that incorporates some type of password as well as protections that prevent the employee from emailing such information or putting it on a jump drive and walking out the door.  It routinely happens and employers need to be vigilant in protecting proprietary information.

Finally, have termination/transition policies in place.  Once an employee is fired or determines they are going to leave, cut off their email and end their access to the computer network or other sensitive information.  It also makes sense to audit any of their recent activity to determine if they have taken proprietary information through jump drives, email, or other storage devices.  It pays to be paranoid.

Texas businesses routinely use non-compete agreements to protect proprietary information in a variety of industries and occupations.  Assuming an employee has executed an enforceable non-compete agreement, what else should Texas employers be doing to enforce these agreements?

To begin with assume a situation where the employee is or has departed.  As part of any exit interview they should be reminded of, provided with, or even asked to acknowledge that they previously signed a non-compete agreement.  This sets the tone from day one of the departure – the company is poised and will likely enforce the agreement.

In the event the employee quits and there is no exit interview, immediately provide them with a reminder letter and provide the agreement.  Use mail, email, delivery or whatever means is appropriate.  The point is to re-notice them.

Make sure the employee has returned all proprietary information (that should be in an employment agreement) and can no longer access company files or email.

Now the hard part – uniformly enforce the non-compete.  If the employee is violating a non-compete, enforce the non-compete. Why?  First of all an ex-employee that is considering competing might reconsider if they know they are going to be sued.  Second, it is very effective for a lawyer to be able to represent to a Judge that the company uniformly enforces the non-compete agreement and takes it seriously.

Yest it can be expensive.  But, if the company has something worth protecting enforcement is an easy decision.

In Texas a non-compete agreement has to be reasonable in time and scope and ancillary to an otherwise enforceable agreement.  The latter is difficult to decipher but basically there must be an agreement where the non-compete enforcer has agreed to give something to the enforcee and the non-compete protects what was provided.  In most cases this would include trade secrets or some type of other proprietary information.

What have Texas courts concluded does not give rise to a non-compete?  A few examples:

• financial benefits;
• a promise to compensate an employee in the event of economic hardship;
• a deferred compensation agreement;
• stock option; and
• the payment of money.

We are waiting on an opinion from the Texas Supreme Court dealing with whether stock options can serve the basis for a non-compete.  Likely not considering the dearth of law stating that compensation cannot, but we shall see.