Twenty years ago, it was almost impossible to convince a court to enforce a covenant not to compete in an employment agreement. In 1994, the Texas Supreme Court issued an opinion that puzzled Texas courts and attorneys for nearly two decades, and unless the employer could prove its former employee was using its own confidential information to compete unfairly, an employer’s efforts to get any relief from the courts often failed.
In 2012, however, the Texas Supreme Court issued the Marsh opinion doing away with the most confusing aspects of its earlier opinion, thus paving the way for greater clarity and certainty in this area of the law. As a result, covenants not to compete are becoming easier to draft and more likely to be enforced.
Take for example a case decided late last year by the Eastland Court of Appeals, “Garcia v. Oilfield Mud & Chemical Services, Inc. Benito Garcia worked as a technician servicing the drilling rigs of his employer’s customers. He quit and started his own competing business, and he began soliciting business from the same drilling rig operators he had been working with before. Based on two noncompetes Garcia had signed, the former employer sued and asked the court to issue an injunction to keep Garcia from soliciting business from its customers. The trial court found that Garcia had not received any information from his employer that qualified as a “trade secret,” and under pre-2012 Texas law this probably would have been fatal to the employer’s efforts to get an injunction. However, basing its decision on Marsh, the court issued an injunction because it was necessary to protect the employer’s goodwill and business rapport with existing customers.
Despite recent trends, there will still be considerable uncertainty going forward. The law in this area has changed so many times in the last twenty years, one must now be careful to determine if a court’s written opinion was based on a prior precedent or premise that is no longer valid. Employers must also be careful to avoid overreaching when drafting and litigating noncompetes, because the applicable statute allows a court to penalize an employer who sues to enforce an unenforceable noncompete. That said, greater clarity is usually a welcome development for those of us who practice in this area of the law, and we certainly received greater clarity from the courts in 2012.