Groundbreaking Decision on Non-Compete Agreements

Non-compete agreements traditionally have been disfavored but, under certain circumstances, have been enforceable in Texas.  In follow up to rulings in recent years that lighten the burden for employers to enforce non-competes, the Texas Supreme Court has reached another important decision that strengthens the ability of employers to enforce non-competes. In Marsh USA Inc. et al. v. Cook, Case No. 09-0558 (Tex. June 24, 2011), the Court held that a non-compete covenant contained in a stock option plan was enforceable. The Court reasoned that stock options are sufficient consideration for a non-compete because they give rise to the employer’s interest in protecting the "goodwill" of its business. 

 This holding is a significant departure from past holdings where courts for many years viewed that providing financial consideration was not sufficient for a non-compete agreement. Only the provision of confidential information, trade secrets, special training, and/or other proprietary information supporting a company’s goodwill was sufficient consideration. In Marsh, the Court established a new test that will pave the way to additional avenues for employers to take in seeking to protect the goodwill of their businesses.

by Jim Stanford and Michael S. Byrd

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