Austin, TX (Law Firm Newswire) August 4, 2011 – The Texas Supreme Court recently reversed years of established precedent and held that an employer’s grant of stock options to an employee served as ample consideration to support a non-compete agreement. With this ruling, the court changed long-standing Texas law that effectively held that a noncompete agreement would not be enforceable if the only consideration for it was money or other financial incentives such as stock options.
Previously, Texas courts provided that the consideration for a noncompete agreement must “give rise” to the employer’s interest in restraining the employee from competing. Generally, the consideration provided by the employer would need to include matters such as confidential information or training. Now that has all changed.
In Marsh U.S.A., Inc. and Marsh & McLennan Companies, Inc. v. Rex Cook, Cook served as a managing director for Marsh & McLennan Companies. In exchange for receiving stock options in MMC, Cook executed a noncompete agreement which provided that if he left the company within three years after exercising the stock options, he could not solicit business similar to MMC within two years of leaving and he could not attempt to hire any MMC employees during this same period. When Cook left within this time period to work for a competitor, MMC sought to enforce the noncompete agreement. Under prior law, Cook’s noncompete would likely have been unenforceable. The court, however, threw out the prior “give rise” requirement in the law and held that where the noncompete is ancillary to an otherwise enforceable agreement and reasonable as to time, area and scope of activity restricted, then it will generally be enforceable. The court noted, “valid covenants not to compete ensure that the costs incurred to develop human capital are protected against competitors who, having not made such expenditures, might appropriate the employer’s investment.”
Austin noncompete attorney Gregory D. Jordan notes, “This case is a potential ‘game changer’ with noncompetes in the state of Texas. This area of the law has been changing at a faster rate than perhaps any other area of law in Texas.” Jordan continues that, “This case greatly broadens the types of noncompete agreements that will likely be found enforceable.”
With this new ruling, Texas courts appear less focused on the consideration for a noncompete agreement and more focused on whether its terms are reasonable. It will be very interesting to see how the law now evolves.
“Texas law on noncompete agreements continues to change incredibly quickly,” says Austin noncompete attorney Gregory D. Jordan. “Given the dramatic changes in this area of the law, anyone considering drafting or signing a noncompete agreement should consider meeting with legal counsel.”
The Law Offices of Gregory D. Jordan has handled many business and employment disputes involving noncompete agreements, unfair competition, and breach of contract. Jordan has decades of experience with diverse businesses, and represents companies, individuals, and employees. To learn more, please contact Austin noncompete lawyer, Austin business litigation attorney Gregory D. Jordan at http://www.theaustintriallawyer.com or call (512) 419-0684.
To learn more, contact Austin employment attorney and Austin business attorney, Gregory D. Jordan or visit http://www.theaustintriallawyer.com.
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