Recent court ruling sheds light on non-compete issues


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Fort Worth Business Press. 11/6/2006, Vol. 19 Issue 45, p17-17. 1/2p

The article discusses the 2006 ruling regarding the enforcement of a covenant not to compete when employment is at-will. As contrasted to the 1994 Supreme Court ruling, when employment is at-will, the employer's promise had to be fulfilled at the time the agreement was entered while according to the 2006 ruling, the covenant needs to be ancillary to or part of the agreement at the time it is made.

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Recent court ruling sheds light on non-compete issues

  1. 1. NtvambBr 6-12,2006 For! Worth Buslitss Press 17 W E GETRecent court ruling sheds light on non-compete issues 4 1 MINUTES The Texas Supreme that, when employment was at-will, the agreement was entered. Alex Sheshunoff Court has signifi- employers promise had to be fulfilled Mgt. Svcs. LP V. Kenneth Johnson and A WEEK WITH cantly changed its at the time the agreement was entered. Strunk & Associates LP S.W.3d in te rpretation of During the 12 years following 1994, (Tex. 2006). This opinion removes ALL THE the Covenant Not this timing requirement caused many a major impediment to the enforcement to Compete Act, courts to find that CNTCs were not of a CNTC when employment is at-will. TOP CEOs... Tex. Bus. & Comm. enforceable when employment was at- Code sections wili. Issues likely to arise 15.50ia), et. seq. In The 2006 Sheshunoff opinion the context of at- decides only the issue of the meaning witl employment, of "at the time the agreement is made."Henry H. the employer is noRobinson Nonetheless, the opinion states, in longer required to dicta, that, "We also take this opportu-Guest columnist fulfill its promise to nity to observe that section 15.5O(a)provide the employee with considera- does not ground the enforceability of ation (e.g., confidential information) at covenant not to compete on the overlythe time the agreement is made. This technical disputes . . . over whether aremoves one major obstacle to the covenant is ancillary to an otherwiseenforcement of a covenant not to com-pete (CNTC) when employment is at- enforceable agreement." Despite thewill. dicta, it would be a mistake to infer Last month, the court reversed the that, in the future, fundamental dis- 1994 ruling and gave a different inter- putes will not arise under this lan-The change and its significance pretation to the identical statutory lan- guage. First, disputes will continue to This 2006 change is best appreciated guage. According to the 2006 ruling, the arise over the issue of whether thewhen contrasted with earlier statutory language "at the time the agreement is employer has in fact provided the con-and historical perspectives. Part of sec- made" does not refer to or modify the sideration legally required for a con-tion 15.50(a) provides that, "a covenantnot to compete is enforceable if it is immediately preceding phrase "enforce- able agreement," but rather, to "ancil- tract. An employer cannot rely on past D o YOU? lary or part ... " The new opinion states consideration, but rather, must provideancillary to or a part of an otherwise "new consideration." The employerenforceable agreement at the time the that, "the covenant need only be ancil- lary to or part of the agreement at the must provide the consideration beforeagreement is made ..." It was previous- time the agreement is made." the end of the employees assumed that the phrase "at the timethe agreement is made" referred to or Consequently, provided that the othermodified the immediately precedinglanguage of "enforceable agreement." statutory elements are satisfied, a CNTC is now enforceable if the employer ful- Henry H. Robinson is a practicing labor and employment attorney and head ofthe labor and employment section of Kelly Hart A HaUmiin Business PressThus, the Supreme Court ruled in 1994 fills its promise at any time after the LLP. The World Expert 0 t Cell Transplantation Ha^Just Been Trans pi an rom japan To VorT Xorth. Roger Staubach ihuirman & CF.O The Staubach Company Were proud lo welcome worfd-renowned islet cell researctier, Shinlt^i Matsumoto, M.O., Ph.D., to our medical staff. Baylor Research Institute has a iong history of Bringing innovative treatment options in the fight against diatsetes through transiatlonai research. Our active islet research program incluctes the only FDA approved isiet ceii processing lab in Texas While still in the clinical trial stage, islet cell transplantation has already shown great promise t)y enabling those with type I diabetes to significantiy improve ttwir blooci sugar ieveis. Wete pleased to provide quality health care as part of our ongoing commitment lo Fort Worth. After all, its esteemed scientists like Dr. Mateumoto that make Baylor a very good place to tje. Baylor All Saints Medical Center, vvtiere the most advanced treatments can be found YLOR ^BAYLOR "^ Reaeorcli Inititute Ail Saints Medical Center at Fort Worth 1400 Ei^itn Avenue FortWorW, IK 76104 1.800 4BAVL0R BaylOfHealthXOni 8 « W HetKh ^