Labor & Employment Law

Texas Employment Agreements: To Obtain Reformation of Noncompete Agreements in Texas, Seek Injunctive Relief

By Robert Wood, David Ellis, and James Landon

In a recent case in Houston, the First District Court of Appeals upheld a trial court’s failure to reform an overly broad covenant not to compete. The covenant was overly broad in three respects: (a) there was no geographical limitation; (b) the covenant prohibited the employee from contacting all of his former employer’s customers, not merely the customers with whom the employee personally dealt; and (c) the employee was required to pay a harsh financial penalty if any customer continued doing business with him (whether or not the employee solicited the customer).

Tex. Bus. & Com. Code § 15.51(c) states in part:

[T]he court shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time, geographical area, and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill or other business interest of the promise and enforce the covenant as reformed, except that the court may not award the promise damages for a breach of the covenant before its reformation and the relief granted to the promise shall be limited to injunctive relief. (emphasis supplied)

Despite this provision’s seemingly mandatory requirement that an overly broad covenant be modified, the trial court failed to do so, for two reasons. First, the employer did not plead for reformation. Second, the employer only sought damages. The latter point was significant, the court believed, “because the only relief available under a reformed covenant—injunctive relief—was not sought by [the employer].” 

Practice pointer: In cases in which you believe the covenant may be too broad (which may be true in some respect in most cases), plead for reformation. Also, seek injunctive relief, even if you don’t think you’re entitled to a temporary restraining order, to increase the likelihood that the court will view reformation as something that is warranted.

Full post as published by Texas Non-Compete Law Blog on May 30, 2007 (boomark / email).