Covenants not to compete traditionally have been difficult to enforce in Texas. An employer must make the covenant ancillary to or part of an otherwise enforceable agreement, and the consideration given by the employer must "give rise" to the employer's interest in restraining the employee for competing. According to earlier Texas Supreme Court opinions in Light and Sheshunoff, the only type of consideration that supports a non-compete in the general employment setting is the affirmative promise of confidential information or specialized skills and training. Now, based on a recent decision from the Texas Supreme Court, although a non-compete provision in an "at will" employment agreement did not specifically promise that the employer would provide confidential information to the employee, the Court found an implied promise to provide confidential information is sufficient to render the non-compete enforceable.
In Mann Frankfort Stein & Lipp Advisors, Inc. v. Brendan Fielding, the accounting firm required Fielding, at the inception of his reemployment, to sign an at-will employment agreement containing a client purchase provision that was effectively a covenant not to compete. Specifically, the client purchase provision stated:
If at any time within one (1) year after the termination or expiration hereof, Employee directly or indirectly performed accounting services for remuneration for any party who is a client of Employer during the term of the Employment Agreement, Employee shall immediately purchase from Employer and Employer shall sell to employee that portion of Employer`s business associated with each such client.
Notably absent from the employment agreement was a promise from the employer to provide confidential information or specialized skills and training to the employee in exchange for the promise not to compete - although the employee expressly promised not to disclose any confidential information.
The Supreme Court of Texas held that when it is clear that performance expressly promised by one party (in this case, the employee`s promise not to disclose confidential information) is such that it cannot be accomplished until a second party has first performed (employer must first provide the confidential information), then the law will deem the second party to have impliedly promised to perform the necessary action. In other words, because Fielding's job — and his promise not to disclose confidential information — could not have been performed without Mann Frankfort providing confidential information to him, and since there was proof that Mann Frankfort did in fact provide confidential information to Fielding, then an implied promise to provide confidential information existed and constituted sufficient consideration to enforce the noncompete.
While the Supreme Court ultimately held the non compete to be enforceable — a win for the employer — simply including the specific language promising the confidential information to the employee in the text of the employment agreement could have saved the employer the headache of the appellate process.
