Texas Employment Law Update : Texas Employment Lawyer & Attorney : Russell D. Cawyer : Kelly Hart & Hallman Law Firm : Dallas TX Labor Updates

I've previously written about the specific requirements that must be included in a covenant not to compete with a licensed physician to make the restrictive covenant enforceable.  The Dallas Court of Appeals recently affirmed a trial court's decision that a noncompetition agreement between a surgical practice and several limited-partner physicians was unenforceable because the agreement lacked one of the statutorily required provisions.  You can access the Court's opinion in Greenville Surgery Center Ltd. v. Beebe here.  In short, the noncompete lacked the buy-out clause required by the statute.  That defect alone was sufficient to render the noncompetition obligation unenforceable.

Beebe should remind Texas employers that when drafting noncompetition agreements, it is important to have a knowledgeable, Texas attorney review the agreement before having employees or partners sign it.

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Last summer, I detailed the Dallas Court of Appeals' decision in Marsh USA, Inc. v. Cook where the court held a noncompetition agreement supported only by stock-options as consideration was unenforceable.  You can read that post here. Today, the Supreme Court of Texas announced that it would hear the appeal from the Dallas Court of Appeals.  You can view the order list here.  

Review of the Cook case gives the Court an opportunity to extend (or break) its streak of easing the standards for enforcement of restrictive covenants in Texas that I have previously detailed.  (Post here).

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Last week's season finale of AMC's critically acclaimed series "Mad Men" shows a prime example of how to get involved in big time litigation when leaving a former employer to start-up a competing enterprise or work for a competitor. Mad Men is a made for cable series set in the 1960's about a Madison Avenue advertising firm.

In the season finale, Don Draper, Roger Sterling and Bert Cooper learn that their New York subsidiary of a London-based advertising firm ("PPL") is being sold to a competitor.  Shackled by noncompetition agreements they signed when their firm was purchased by the London firm and intent on not working for their competition, they evaluate their options. 

The solution --conspire with the office manager (a long-time PPL employee who will be cast aside following the sale) to terminate their contracts (fire them) in return for a partnership interest in the new venture.  To ensure that their plans are not discovered, the office manager strategically waits to advise PPL's home office of the terminations until the close of business Friday afternoon thereby ensuring that PPL will not learn of the change until Monday morning.  Over the course of the weekend, Draper and company loot client files; take account and marketing materials; and go on a wholesale campaign to solicit firm clients to join the new firm.  This is the season finale and so we don't yet know whether the 1960's London-based company response will be to file lawsuits or do nothing. 

In today's times, I would expect the next season would begin, and end, as follows.  The episode opens in a courtroom where Draper, Sterling and Cooper are about to be sentenced for certain criminal offenses.  The next scene then flashes back to last season's finale with Draper and company wheeling out boxes and boxes of information from their old employer; making solicitations to the customers of their old firm; and competing fiercely for new business.  Lawyers are engaged; lawsuits are filed.  Draper and company are slapped with injunctions that prohibit them from calling on or doing business with old firm clients and from using the confidential, proprietary information that was misappropriated from the old employer.  Next, a grand jury is summoned by the U.S. Attorney for the Southern District of New York. Our heroes are indicted for theft of trade secrets and a whole host of other misconduct.  Draper files for bankruptcy since his resources are drained by being a partner in an advertising firm that is enjoined from working with clients --not to mention the divorce from his lovely wife Betty.  Finally, our Mad Men plead guilty to criminal offenses and are sentenced to moderately lengthy prison sentences.  Next season's opener ends up being the series finale because the protagonists misappropriated and used information that belonged to their old employer.

What this episode of "Mad Men" teaches is that if one is going to leave an employer and either work for a competitor or start a competing venture; don't do it like the Mad Men.  Departing employees should 1) honor reasonable and enforceable contractual agreements regarding competition and nondisclosure of confidential information; 2) not take or use anything from the former employer; and 3) compete fairly.

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On April 17, 2009, the Supreme Court of Texas continued its trend of finding ways to enforce covenants not to compete in the employment context.   In Mann Frankfort Stein  & Lipp Advisors, Inc. v. Fielding, the Court considered "whether a covenant not to compete in an at-will employment agreement is enforceable when the employee expressly promises not to disclose confidential information, but the employer makes no express return promise to provide confidential information."

Fielding was hired by an accounting and consulting firm as a CPA and Senior Manager in the Tax Department.  When he accepted the at-will senior manager position he was required to sign the firm's standard at-will employment agreement.  The agreement contained a client purchase provision.  The client purchase provision required that in the event Fielding performed work for Mann Frankfort's clients in the year following his termination of employment, Fielding was required to purchase that portion of Mann Frankfort's business the particular clients represented. 

The agreement lacked any affirmative promise from Mann Frankfort to provide confidential information to Fielding.  However, Fielding affirmatively promised not to use or disclose Mann Frankfort's confidential information.  When Fielding left employment and began competing, the parties litigated over the validity and enforceability of the employment agreement and client purchase provisions. 

The evidence showed that after signing the employment agreement Fielding was provided with access to and use of confidential information of Mann Frankfort and its clients.  The information included "clients' names, billing information and pertinent tax and financial information."  When Fielding was hired as a senior manager in the firm's Tax Department, he would be required to have and use information confidential to the firm by the nature of his duties. 

The Court held that the lack of an affirmative promise to provide Fielding with confidential information in the agreement was not fatal to the enforceability of the agreement or the client purchase provisions in this case.  The Court explained that when the nature of the employment will reasonably require the employer to provide confidential information to the employee for him to accomplish his job duties, the employer has implicitly promised to provide the confidential information and the covenant is enforceable as long as the other requirements of the Texas Covenant Not to Compete Act are satisfied.

The effect of this holding will be to make it easier to enforce covenants not to compete in Texas.  Additionally, the Court has at least tacitly endorsed those intermediate court of appeals decisions that have concluded that restrictive covenants other than noncompete provisions (e.g., client purchase provisions or forfeiture clauses) should be analyzed like noncompetition provisions that strictly prohibit competition rather than merely providing a monetary penalty for such competition. 

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