Labor & Employment Law

Texas Non-Compete Agreements: Is A Promise to Provide Confidential Information Required Anymore?

By Robert Wood

 A recurring issue in non-compete cases involves how definite the employer's promise to provide confidential information must be for the agreement to be enforceable.  Historically, disputes have focused on whether an explicit promise to provide the information was required, or whether an implied promise (e.g., language in which the employee "acknowledged" that he would receive information) was sufficient. 

In a recent case from the United States Court of Appeals for the Fifth Circuit, the court held that the following combined to make a non-compete agreement enforceable: 

1. A definite term of employment.  The agreement provided that the employee would be employed for three years, and that he could only be terminated for good cause; 
2. A nondisclosure provision.  The employee promised that he would not disclose his employer's confidential information to others; and 
3. Receipt of confidential information (but no promise by the employer to provide any information).  The employee actually received confidential information from the employee. 

Based upon these facts, the court held that the agreement contained an implied promise by the employer to provide confidential information to the employee.  The court explained: "The Employment Agreement indicates that both Stock and Vybiral anticipated that Vybiral would work at Stock for at least three years. . . . Further, the Employment Agreement itself contemplated that Vybiral would be receiving confidential information, as evidenced by the nondisclosure covenant. Finally, the district court found that Vybiral did in fact have access to Stock's confidential information, including sales strategies, marketing strategies, pricing strategies, vendor arrangements, contractor programs, and customer information."

OBSERVATION: 

This opinion, as well as the earlier opinion from the Corpus Christi Court of Appeals (about which we blogged on October 1, 2008), suggests that, in determining whether the wording of a non-compete agreement is enforceable, courts are less willing than ever to invalidate an agreement because certain words (such as "Employer promises to provide Employee with confidential information") are not used.  Rather, courts seem willing to examine an agreement in its totality, to assess whether the parties envisioned that the employer would convey confidential information to the employee.  The lesson of the Texas Supreme Court's Sheshunoff opinion, and subsequent cases, appears to be that courts are putting substance over style in determining the enforceability of non-compete agreements. As a result, non-compete agreements that formerly might not have been enforceable may now be viable. 

Ray Mart Inc. v. Stock Building Supply of Texas LP, et al., No. 07-50609 (5th Cir. Nov. 5, 2008).

Full post as published by Texas Non-Compete Law Blog on December 22, 2008 (boomark / email).