Top Five Non-Compete and Trade Secret Issues to Watch for in 2011


1. Texas Supreme Court Decision: Can Money Serve as Consideration for a Non-Compete?

In April of 2010, the Texas Supreme Court agreed to review an appellate court decision that will require the Court to answer the following question: Can money serve as consideration for a non-compete? In Marsh USA v. Cook, a high level employee received stock options in exchange for a signing a non-compete. After the employee left, the employer attempted to enforce his restrictive covenants and failed. Why? In simple terms, Texas has a statute governing non-compete agreements. The statute says restrictive covenants must be ancillary to an otherwise enforceable agreement at the time the agreement is made, and the otherwise enforceable agreement must give rise to the need for protection. What does that mean? It seems a lot of courts and lawyers in Texas have been asking the same question. For example, suppose an employer promises to provide an employee with confidential customer information, but requires the employee to agree not to solicit clients. Various Texas cases find this to satisfy statutory requirements. The employer has made “an otherwise enforceable agreement” – an agreement in which it obligates itself to provide the employee with confidential information – and at the time the agreement is made, the employee executes a restrictive covenant that is ancillary to the "otherwise enforceable agreement" which gives rise to the need for protection. In Marsh USA, the employee argued that providing stock options did not give rise to a need for a restrictive covenant. In response, Marsh argued that such a holding is hostile to economic development and that employers should be able to protect goodwill that exists in the form of customers relationships. The Texas Supreme Court accepted the case in early April 2010. Perhaps a decision will be issued in 2011.

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