Many employers require their executives and key employees to sign employment agreements that identify the employee’s duties, responsibilities, and compensation. Also included in these employment agreements is a statement of the respective termination procedures to be used at the conclusion of the employment relationship. Typically, these employment agreements include a choice-of-law provision stating that they are governed by Texas law.
Employment agreements often include non-compete, non-solicitation, and non-disclosure restrictions, also known as restrictive covenants. Typically, the non-compete restriction becomes effective on the date of the employee’s separation from employment and remains in effect for one to three years henceforth. A non-compete covenant usually contains a geographical area that is off limits to the departing employee. The non-compete clause generally also describes the business activity that is to be restrained. This description is often vague and general. An example of a non-compete covenant might be as follows: From the date of separation from Employer and for two years thereafter, Employee shall not compete within the state of Texas in a business that is similar to Employer’s.
A non-solicitation provision in an employment agreement generally prohibits the departing employee from soliciting current or prospective customers or clients of the employer for a particular period of time, often one to three years. A non-disclosure provision typically prohibits an employee from revealing the employer’s confidential or proprietary information to a third party during and after the employment relationship.
Often, legal disputes arise over certain issues and whether or not the non-compete is enforceable. Texas courts are likely to enforce non-solicitation and non-disclosure provisions, as long as certain contractual requirements are satisfied.
If you have an employment agreement that contains non-compete, non-solicitation, and/or non-disclosure clauses, Kilgore & Kilgore can review your employment agreement and help you understand those provisions. If you have questions about your employee rights under your employment agreement, or if your former employer is threatening to bring, or has already brought, a claim against you, click here to contact us.
Generally, under Section 15.50(a) of the Texas Business and Commerce Code, Texas courts will enforce a non-compete covenant as long as the employment agreement satisfies certain contractual requirements, the temporal and geographical terms, and the activity to be restrained in the non-compete are reasonable and do not impose a greater restraint than is necessary to protect a legitimate business interest.
Although under Texas law a non-compete covenant could potentially be enforceable, a non-compete might not necessarily be enforceable under another state’s such as Oklahoma’s, law should it apply.
In Cardoni v. Prosperity Bank, a 2015 preliminary injunction case from the U.S. Court of Appeals for the Fifth Circuit, the court determined that Oklahoma law applied, rather than Texas law, as provided in the parties’ choice-of-law provision. This ruling specifically addressed the issue of whether or not a non-compete is enforceable against four bankers in Tulsa who left Prosperity Bank and went to work for a competitor. As part of its choice-of-law analysis, after examining the relevant contacts of both parties, with both Texas and Oklahoma, the court initially determined that Oklahoma law had a more significant relationship to the employment agreements, and thus, would apply in the absence of the Texas choice-of-law provision.
The Fifth Circuit also concluded that the bankers were able to avoid the application of Texas law to their non-competes because Oklahoma had a materially greater interest than Texas on the issue of the enforceability of the non-competes. This was because the application of Texas law would contravene a fundamental policy of Oklahoma. Unlike Texas, Oklahoma has a strong, fundamental policy against the enforcement of non-competes. Unlike Texas, Oklahoma is averse to non-compete covenants as restraints on the exercise of a person’s profession, trade, business, and competition. Thus, as in the Cardoni case, the enforceability of a non-compete could hinge on a determination of whether Texas law or the law of another state applies to the non-compete covenant.
Kilgore & Kilgore has employment attorneys with exactly the type of skills and experience required to review your employment agreement and to counsel you on any non-compete, nonsolicitation, and/or non-disclosure provisions. To learn more about the employment law practice at Kilgore & Kilgore, click here Non-compete Agreements. You can contact Kilgore & Kilgore through our website, click here. We offer a free review of the facts of your case with an employment attorney.
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