In Part 1, I covered some thoughts on enforcing noncompetition agreements in Texas following the Texas Supreme Court’s new decision in Marsh USA. Today I’m addressing some tips that employees (and their representatives) who are asked to sign or are attempting to bust a noncompetition agreement might consider.
Prior to signing the agreement, negotiate everything you can. For example:
- Carve out customers or clients the employee serviced before becoming employed by the employer requesting the noncompete.
- Seek very specific scope of activity restraint rather than a very generalized restraint (e.g., employee shall not engaged in any business that competes with any of the products or services of the company).
- Negotiate a garden leave provision (i.e., the employee will receive some amount of money during the term of the noncompete period)
- Ask for a buy-out clause where the employee (or his new employer) can buy out of the noncompetition agreement.
- Ask that the noncompete be automatically waived if the employers ends the relationship through no fault of the employee (e.g., the employee is laid off).
When joining a new employer, the employee should seek an agreement the new employer will indemnify, defend and/or advance defense costs if the employee is sued over an alleged violation of the noncompete. The employee should also try and ensure that his employment will not be terminated by the new employer in the event he is enjoined over a restrictive covenant with a former employer (Don’t laugh, I’ve seen an new employer provide this protection in an offer letter when it expected the former employer would sue the new hire).
When litigating over the terms of a noncompetition agreement:
- Emphasize to the Court how limited the holding in Marsh USA is. Marsh USA just ruled out a per se rule that noncompetes tied to stocks are unenforceable.
- Emphasize the lack of imminent, irreparable harm.
- Determine the primary purpose of the agreement and emphasize to the Court that the real purpose is to stifle competition rather than protecting goodwill or confidential information.
- Identify lesser restrictions that will protect the employer’s interest.
- Distinguish your client from the long-term, highly valued Managing Director in Marsh USA.
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