Labor & Employment Law

Denton Texas Employment Attorney. Noncompete Agreements Enforceable.

By Robert Wood

For several years in Texas, non-compete agreements that arose in the context of at-will employment were invalidated by Texas courts because there was a gap in time between when the employee signed the non-compete agreement and when he received the consideration (i.e., confidential information) from the employer.  Texas courts reasoned that since the employer theoretically could have terminated the employee between the time he signed the agreement and the time when the employer conveyed the information, the employer's promise to provide the information was 'illusory' (meaningless) when it was made.  Thus, even if the employer did in fact provide confidential information to the employee, the non-compete agreement would be held to be unenforceable.

This changed when, in 2006, the Texas Supreme Court handed down its opinion in the Alex Sheshunoff case.  In that case, the court held that a 'unilateral contract formed when the employer performs a promise that was illusory when made can satisfy the requirements of the Act.'  Thus, in a situation in which (a) an employee was employed 'at will'; (b) the non-compete agreement contained a promise by the employer to provide confidential information to the employee; and (c) the employer provided confidential information to the employee, the agreement would become enforceable at the time the confidential information was conveyed.

OBSERVATION:

Sheshunoff was a critically important decision, because it made enforceable many non-compete agreements that otherwise would have been unenforceable (i.e., those in which the at-will employee was provided with confidential information sometime after he signed the agreement).  After Sheshunoff, the key inquiry is whether the employee actually received confidential information from the employer. If he did, the non-compete agreement may be enforceable.

Full post as published by Texas Non-Compete Law Blog on April 16, 2010 (boomark / email).