I wrote about the case of Drennen v. Exxon Mobile over a year ago.  Drennen was the case of the Exxon executive who forfeited millions of dollars in incentive compensation when he left Exxon to work for a competitor.  You can read the background of the case here.  Today, the Texas Supreme Court held that a forfeiture clause contained in Exxon’s non-contributory profit sharing plan (i.e., a plan to which the employee contributes nothing) did not constitute covenant not to compete under Texas law.

Because the forfeiture provision was not a noncompete, the public policy of the state of Texas was not implicated and the court held that the parties’ choice of law provision should be honored.  The effect of applying New York, rather than Texas law, was that Exxon wins and Drennen loses his nearly $6M in incentive compensation. Not answered in today’s opinion is whether such forfeiture provision would have been enforceable under Texas law.

Three takeaways from today’s opinion.

  • Texas law still compels ignoring foreign choice of law provisions for noncompetition agreements with Texas-based employees;
  • Forfeiture provisions conditioned on continued loyalty in agreements do not necessarily constitute noncompetition agreements;
  • Forfeiture provisions conditioned on continued loyalty in employment agreements, may still however, be unreasonable restraints of trade under Texas law (not decided today).

You can download the court’s opinion in Exxon Mobil Corp. v. Drennen here [.pdf]

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