Labor & Employment Law

Texas Non-Compete Law. Enforcement of Non-Solicitation Agreements in Texas

By Robert Wood

A recent appellate case from Houston demonstrates that, in determining whether non-solicitation agreements are enforceable, Texas courts treat them as non-compete agreements.

In the case, an insurance broker was bound by an employment agreement that contained the following provision:

Accordingly, the Executive understands and agrees that for a period of two (2) years following the termination of his employment for any reason whatsoever, he will not, directly or indirectly, solicit, place, market, accept, aid, counsel or consult in the renewal, discontinuance or replacement of any insurance (including self-insurance) by, or handle self-insurance programs, insurance claims, risk management services or other insurance administrative or service functions for, any AJG or Corporation account for which he performed any of the foregoing functions during the two-year period immediately preceding such termination.

The broker left his employer and began working for a competitor. Shortly thereafter, the broker was sued by his former employer.

Obviously, the above provision is broader than a simple non-solicitation provision, because rather than prohibiting mere solicitation, it also prohibits the insurance broker from doing business with his former customers. Given how broad this provision is, the broker is deprived of one of the best arguments that defendants in non-solicitation cases usually have—i.e., 'I didn't solicit the customers—they contacted me!' This provision is so broad that it doesn't matter who initiated the contact.

The court in this case enforced the above provision against the former employee. In doing so, the court examined the provision just as it would examine a non-compete agreement. That is, the court held the non-solicitation provision to the same rigorous enforcement standards to which it would have held a non-compete agreement. The court required the non-solicitation provision to be 'ancillary to an otherwise enforceable agreement.' In other posts, we will explain what that means. 

But the takeaway from this post is this: Non-solicitation provisions are essentially non-compete provisions. Unlike non-disclosure agreements, which are enforceable in most all circumstances because they simply keep employees from doing what they shouldn't do anyway (i.e., they prohibit use and disclosure of the former employer's trade secrets), non-solicitation provisions restrain competition. Because they do so, they must be put under the same microscope that is used to assess the enforceability of a non-compete agreement.

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