Since the Texas Supreme Court’s Sheshunoff and Mann Frankfort opinions, Texas appellate courts have, with increasing frequency, enforced covenants not to compete in the employment context. Gone are the days when noncompetition agreements were difficult to draft and enforce in Texas.
In Gallagher Healthcare Insurance Services v. Vogelsang, the First District Court of Appeals in Houston reversed a summary judgment to a former employee and rendered judgment in favor of the former employer on a breach of contract claim involving noncompetition obligations. In Gallagher Healthcare, the former employee was employed as an insurance broker. Her primary job was to renew existing business and secure new business. After working for Gallagher Healthcare (or its predecessor) for twelve years, Vogelsang resigned and began working for a competitor. Gallagher Healthcare sued to enforce its noncompetition agreement with Vogelsang that prohibited her from soliciting the clients she worked with during her last two years of employment with Gallagher Healthcare for two years. The trial court found for Vogelsang and held that the covenant not to compete was not enforceable. In reversing the trial court and rendering judgment in favor of Gallagher Healthcare, the court of appeals made the following significant conclusions.
- Two year prohibition from doing business with the 80 customers the employee dealt with during last two years of employment was a reasonable limitation.
- A customer limitation prohibiting contact with customers the employee did business during employment is an adequate substitute for a geographic limitation.
- Information given to the employee during employment was sufficient to give rise to interest worthy of protection and included: financial information, customer information, employee salary information, client specific insurance information (e.g., insurance proposals, coverages, loss histories, exposures, limits, renewal dates, premiums, commissions and fee revenue), team related income and budgets, account retention strategies, at-risk accounts, strategic prospecting and selling, niche strategies, 2004 financial results, 2005 quarterly financial results, new and lost business summaries, professional standards audit results and related analysis, multiple types of prospect lists, premium volume comparisons, budget reviews, production reviews, internal committee lists and 2006 compensation plan.
The take away from Gallagher Healthcare, and other recent opinions, is that Texas courts are increasingly willing to enforce noncompetition agreements that are reasonably limited.