Labor & Employment Law

Non-solicitation provisions must bear relation to employees' activities

By Robert Wood, David Ellis, and James Landon

A recurring issue in employee mobility cases is the extent to which a non-solicitation provision in an employment contract is enforceable. Typically, an employment agreement will contain a provision prohibiting post-employment competition, provisions prohibiting post-employment solicitation of customers and/or employees, or both. 

It's not uncommon for a provision prohibiting solicitation of employees to apply to all of the employer's employees. However, several Texas cases, including a recent one from the Beaumont Court of Appeals, have held that such provisions are too broad.

In Poole v. U.S. Money Reserve, Inc., No. 09-08-137 CV, 2008 WL 4735602 (Tex. App.—Beaumont Oct. 31, 2008), an employer filed suit against two of its ex-employees for, inter alia, violating their non-solicitation agreements. The agreements at issue prohibited the former employees from soliciting or attempting to take away 'any existing or potential clients, customers, suppliers, businesses, and/or accounts of [the employer] . . .'

The trial court enjoined the defendants from soliciting any of the plaintiff's customers. The plaintiffs then filed an interlocutory appeal, seeking a ruling that the injunction was overly broad.

The court of appeals held that the temporary injunction was void because the injunction order failed to state why injunctive relief was necessary (i.e., it failed to explain why the plaintiff would suffer irreparable harm absent injunctive relief). Under Texas law, a temporary injunction, to be valid, must state why irreparable harm would occur absent injunctive relief. Because the injunction in this case did not do so, the injunction was void.

In addition, the court of appeals held that the temporary injunction was overly broad. Specifically, the court held that a 'restrictive covenant is unreasonable unless it bears some relation to the activities of the employee.' Because the non-solicitation provision prohibited the former employees from soliciting all of their former employer's customers, it was too broad.  The injunction should have been limited to the customers with which the defendants themselves did business.

Moreover, the court of appeals held that the restriction on solicitation of potential clients was overly broad. The plaintiff argued that the defendants had access to its marketing and advertising materials, and that these materials informed the defendants of the identities of plaintiff's potential customers. But the court held that the totality of evidence showed that the defendants, who were salespersons, were not in fact knowledgeable about the plaintiff's marketing information. Thus, the restriction s pertaining to potential customers was overly broad.

OBSERVATIONS:

1.         For a temporary injunction to be valid, it is not enough for the facts to justify the granting of the requested relief. Rather, the wording of the injunction order must precisely detail why irreparable harm will occur absent the injunction. Failing to comply with this requirement will render the order void.

2.         To maximize the likelihood of enforceability, non-solicitation provisions (as well as non-compete agreements in general) should largely focus on the activities of the employee (e.g., the customers with whom the employee dealt).

Full post as published by Texas Non-Compete Law Blog on March 23, 2009 (boomark / email).