Posted on April 23, 2009 by David L. Barron and Daniel J. Schuch

Texas Supreme Court Makes It Easier To Enforce Noncompete Agreements

On April 17, 2009, the Texas Supreme Court removed a hurdle to the enforcement of noncompete agreements and clarified what is required for a valid agreement in the state of Texas.

In Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 2009 WL 1028051 (Tex. 2009), the court addressed the question of whether a noncompete in an at-will employment relationship is enforceable when the employee expressly promises to not disclose confidential information but the employer makes no express return promise to actually provide confidential information. The court held that, as long as the employment for which the employee is hired will reasonably require the company to provide confidential information to the employee for the accomplishment of the contemplated job duties, it is reasonable to imply a promise to make such a disclosure in the covenant not to compete. The court made clear that this holding is contingent upon other requirements of the Texas Covenant Not To Compete Act being satisfied.

This case addresses the lingering question of whether the lack of an affirmative promise by an employer to provide confidential information to an at-will employee voids a noncompete agreement for lack of consideration because the employer could theoretically terminate the employee at any time, without ever providing confidential information. This decision does away with this argument and allows enforcement of the noncompete agreement as long as the employer actually provides confidential information to the employee during employment.

This decision is the second opinion from the Texas Supreme Court in recent years that makes it easier for employers to enforce noncompetes in the state of Texas. It appears that the Texas Supreme Court is signaling to lower courts that future cases should focus more on the reasonableness of the noncompete agreement, and less on hypertechnical legal arguments. Nonetheless, clients using noncompete agreements in the State of Texas should annually review their agreements to ensure they are in compliance with this ever-changing area of law.
 

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Posted on February 11, 2009 by Richard Tuschman

Florida Appellate Court Reverses Injunction in Non-Compete Case

Under Florida law, where an employment contract expires by its terms and the parties continue to perform as before, an implication arises that they have mutually assented to a new contract containing the same provisions as the old.

But this principle does not apply to non-competes and other restrictive covenants contained in employment contracts, as illustrated by a recent decision by the Third District Court of Appeal, Zupnik v. All Florida Paper, Inc., Case No. 3D08-1371 (Fla. 3d DCA, Dec. 31, 2008).

Zupnik had signed a two-year employment contract with All-Florida. The contract provided that "during the Employment Term and within twelve (12) months from the termination of said term, he or she will not directly or indirectly … compete against ALL FLORIDA, within a fifty (50) mile radius of where ALL FLORIDA then engages in business[.]" The contract further provided that "[a]t the expiration of this two (2) year contract, the employee can exercise an option to remain in ALL FLORIDA’S employ as an at-will employee." But the contract did not contain language specifying that the restrictive covenants would continue beyond the two-year term if Zupnik remained an at-will employee after the two-year term expired.

After the expiration of the initial two-year term, Zupnik remained an All Florida employee for an additional two years, but the relationship was not formalized in a written document. Zupnik then formed his own company intending to serve his long-standing customers. All-Florida sued Zupnik and the trial court entered an injunction enforcing the non-competition covenant. The Third DCA reversed. Citing its decision in Sanz v. R.T. Aerospace Corp., 650 So. 2d 1057 (Fla. 3d DCA 1995), the court held that "post-termination restrictions expire upon the termination of an agreement for a specific term, even if an employee remains an at-will employee after the term of the written agreement expires."

For employers, the Zupnik case highlights the importance of drafting non-competes and other restrictive covenants carefully. Where an employment contract is for a specified term (e.g., two years), employers should include language in the contract which provides that the restrictive covenants contained in the contract continue beyond the specified term if the employee remains an at-will employee after the term has expired.
 

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