Texas federal court declines to apply Texas choice of law in non-compete lawsuit

A recent lawsuit in the U.S. District Court for the Southern District of Texas illustrated the importance of choice-of-law provisions in employee non-compete agreements.

The plaintiffs in the lawsuit were employees of F&M Bank, based in Tulsa, Oklahoma. As part of a merger between F&M Bank and Texas-based Prosperity Bank, Prosperity offered the employees new employment agreements that included non-compete agreements.

After the April 2014 merger, some employees were dissatisfied with their new positions and filed suit in Oklahoma state court, seeking a declaration that the non-compete agreements were not enforceable. Prosperity filed an action in Texas state court, seeking a declaration that the non-compete agreements were enforceable. The cases were removed to federal court and consolidated in the Southern District of Texas.

After the employees resigned their positions with Prosperity and began working at CrossFirst Bank in Tulsa, dueling choice-of-law motions were filed by the parties. Although the case was in federal court in Texas, concerning a Texas employer, and the non-compete agreements had a Texas choice-of-law provision, the court ruled that Oklahoma law applied, as the employees lived and worked in Oklahoma.

Oklahoma law is far more restrictive of non-compete agreements than Texas law, and the court entered summary judgment for the plaintiffs, holding that the non-compete agreements were not enforceable.

Gregory D. Jordan is an Austin business attorney and business litigation lawyer. To learn more, visit http://www.theaustintriallawyer.com or call 512-419-0684.