In Texas, Properly Drafted Noncompete Agreements Shape Court Rulings

Austin, TX (Law Firm Newswire) September 24, 2014 – Two recent cases show that covenants not to compete must be carefully drafted in order to be enforced as written by Texas courts.

“In order to be enforceable under Texas law, the limitations in noncompete agreements must be reasonable,” said Gregory D. Jordan, an Austin non-compete agreement attorney. Jordan works extensively with non-competition agreements and who handles employment and business litigation.

A Texas court recently refused to enforce a noncompete agreement because its geographic restriction was considered too broad. 

In Morrell Masonry Supply v. Coddou, a plaster salesman was employed by a supply company in the Houston area. After working for 14 months, he was asked to sign a noncompete agreement, stating that in consideration for participation in his employer’s profit-sharing plan, he agreed not to compete against Morrell in the state of Texas for one year after termination of his employment. 

The noncompete agreement provided for liquidated damages of $100 per day in the event of breach.

Coddou’s employment was terminated for alleged poor performance in December 2009, and Morrell brought suit against him three years later for violating the noncompete agreement. 

The trial court granted Coddou summary judgment, and the Court of Appeals for the First District of Texas affirmed, finding that the statewide restriction (not to compete) in the covenant was too broad to be enforceable, because Coddou only worked in the Houston and Beaumont areas. Thus, the noncompete agreement was broader than reasonably necessary to protect Morrell’s interests.

In another recent case, Brink’s Inc. v. Patrick, a U.S. District Judge in the Northern District of Texas enforced a noncompete agreement against a former Area Director for the secure transportation company. In issuing a preliminary injunction against the employee, the court evaluated the reasonableness of the limitations in the noncompete agreement. 

The court found that a two-year time limitation, a geographical restriction based on the territories where the employee worked, and a scope that prevented the employee only from working in similar positions, were all reasonable restrictions.

“In Texas, the general rule is that limitations in a noncompetition agreement must be reasonable in the length of time of the restrictions, the geographic area covered and the scope of the activity restricted. Where the limitations are too broad, the court may reform them and enforce them as reformed,” noted Jordan.