Yesterday, Ryan Miller and I were invited to speak at the Tarrant County Bar Association’s Labor and Employment Section luncheon. Our topic was the recent changes to Texas noncompete jurisprudence. A copy of the Power Point presentation we jointly presented can be accessed here.
For my contribution, I presented some thoughts on the practical effect the Marsh USA decision will have for employers and employees that dealing with noncompetes. Here is a summary of thoughts:
REPRESENTING THE EMPLOYER USING NONCOMPETES
- Employers should continue to tie noncompetes to promises to provide confidential information and trade secrets to the employees and the employees’ return promises not to disclose that information to third parties. Trial courts are familiar with this concept and will expect it Marsh USA notwithstanding;
- Consider linking the noncompete to some financial benefit provided to the employee that is reasonably related (Marsh USA eliminates the "gives rise to" requirement of Light) to encouraging the employee to generate goodwill for the company. Who knows how far courts will take Marsh USA, but bonuses, salary, for cause termination provisions, favorable parking spaces, fancy job titles, business expense accounts to entertain clients are a few examples of financial benefits that might be reasonably related to encourage employees to create goodwill that come to mind.
- Resist the urge to make the restrictions broader than necessary. Courts have a statutory obligation to reform overly broad covenants, but any damages that accrue prior to reformation aren’t recoverable. Remember, reformation kills damages.
- Marsh USA isn’t a magic bullet. Marsh USA doesn’t change the standard to obtain a temporary injunction (and there is where the battle often lies). Employers still have to show probable right of success on the merits (arguably easier post-Marsh USA) and imminent irreparable harm.
In the next post, I’ll cover my thoughts on what employees who may be subject to a noncompete might consider.
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