Texas Supreme Court Rules on Noncompete Agreement’s Enforceability

The Texas Supreme Court has once again affirmed its decision to make non-compete agreements more easily enforceable by employers against their employees.  The Court was asked to consider whether a covenant not to compete signed by a valued employee in consideration for stock options, designed to give the employee a greater stake in the company’s performance, is unenforceable as a matter of law because the stock options did not give rise to an interest in restraining competition.

Marsh USA Inc. v. Cook, No. 09-0558 (Tex. June 24, 2011), holding that, under the terms of the Covenants Not to Compete Act,a covenant not to compete signed by an employee in consideration of stock options was enforceable because the company’s provision of stock options was reasonably related to the employer’s interest in protecting its goodwill. This was deemed a business interest worthy of protection, thus the noncompete agreement was not unenforceable on that basis. A motion for rehearing was thereafter filed, and the Court recently withdrew its prior opinion and substituted a new opinion in Marsh USA Inc. v. Cook, No. 09-0558 (Tex. Dec. 16, 2011)

Once again, the Court found there was a nexus between the covenant not to complete and the interest being protected, thereby meeting the requirement set out in Covenants Not to Compete Act (Texas Business and Commerce Code §15.50(a)), thereby making the noncompete agreement not unenforceable as a matter of law. Thus, employers have maintained their ability to enforce noncompete agreements against employees under such circumstances.