Noncompetes and Restrictive Covenants

Subscribe to Noncompetes and Restrictive Covenants

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…

A trial court’s order granting or denying a temporary injunction in a noncompete case is rarely reversed by the court of appeals.  This week the Fourteenth Court of Appeals took the unusual step of reversing a trial court’s denial of an employer’s application for temporary injunction seeking to prohibit a former employee from engaging in certain…

In an unpublished opinion, the San Antonio Court of Appeals held that a former employee cannot avoid the effects of a noncompetition agreement under the doctrine of unclean hands, as a matter of law, when the inequitable conduct the employee complains of is separate from the issue in dispute.  (Opinion available here). 

In Central Texas Orthopedic…

Mad MenLast 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…

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…

In addition to containing reasonable restrictions as to time, geographic scope and scope of activity to be restrained, Texas imposes additional requirements for enforceable covenants not to compete with licensed physicians.  Those additional requirements include that the covenant: 

  1. not deny the physician access to a list of his patients whom he had seen or treated

…

In a recent opinion of the Dallas Court of Appeals, the Court held that an insurance brokerage and consulting service firm’s noncompetition and nonsolicitation agreement obtained in return for an award of stock options to an employee was unenforceable under Texas law. (See opinion here).

Rex Cook was a long-term employee of Marsh USA, Inc. Prior…

Reports of corporate espionage appear to be on the rise.  According to U.S.A Today, Starwood Hotels recently sued the Hilton Hotel chain accusing it of stealing trade secrets to help it launch a rival luxury chain quickly and cheaply.  The WSJ.com reports that the lawsuit accuses the Starwood executives "smuggled more than 100,000 documents and electronic files out of Starwood — and that Hilton used the information to create a new luxury hotel brand, called Denizen."

The NY Times reports that Hilton received a federal grand jury subpoena from the U.S. Attorney’s Office for the Southern District of New York asking for documents relating to the two former Starwood executives indicating a criminal investigation is underway.

While the allegations in Starwood/Hilton, if true, are extreme, there has been a dramatic increase in litigation between competitors over the theft of confidential, proprietary and trade secret information.  According to a recent survey conducted by Symantec and the Ponemon Institute, more than 59 percent of ex-employees admitted to stealing former employer’s confidential information such as employee records, customer information, and contact lists. The ease that employees can quickly and covertly appropriate large volumes of electronic data using portable storage devices or web-based personal e-mail accounts should cause all employers with confidential, proprietary or trade secret information and intellectual property great concern.

The large percentage of ex-employees that appear to be taking their employers information without permission can expose their next employer to expensive litigation and potential damages.  Whether the new employer will be liable will depend on a number of factors such as whether (and when) the new employer learns of the theft; how the new employer responds to that knowledge; and how the appropriated information was used. 

Employers that hire employees from competitors should take steps to ensure that they do not inadvertently end up in a civil suit or criminal investigation because of the hiring of those employees. Some measures employers can take in hiring employees from competitors include: ensuring that those employees are not under enforceable noncompetion agreements or restrictive covenants that prohibit the contemplated employment; ensure that employees are advised to and heed the warning not to bring any information (confidential or not) from their previous employer; and advising new hires not to use or disclose any their former employers confidential, proprietary or trade secret information.Continue Reading Reports of Corporate Espionage Between Competitors on the Rise

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…