Bustos Law Firm

Hey now, you stole my employee!!

In Employment, Legal, Texas Law on March 15, 2011 at 1:45 PM

Texas is known as a “right to work” state, and Texas’ laws generally promote the free practice of a trade or the ability to work.  Emergent under Texas law, however, is a body of law devoted to covenants not to compete.  Businesses want to protect those things it finds critical to its success—including its employees.  Texas law is beginning to recognize the importance of human capital to business. As this law has grown, some employers have sought to put their current employees under a covenant not to compete.  Some, however, have run into a huge roadblock in enforcement of their agreement: consideration.

 Under Texas law, an existing employee who signs a covenant not to compete must be given new confidential information as consideration.  Powerhouse Productions v. Scott, 260 S.W.3d 693, 697 (Tex. App.—Dallas 2008, no pet.); see also, Alex Shesnunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644, 651 (Tex. 2006).  This new confidential information serves as consideration for the agreement.  Of course, for any agreement to be binding, there needs to be consideration. This is a really tricky area. It is tough to give an existing employee—one that may be in the employ of the business for years something new and confidential.  Texas law, however, is not sympathetic.  Some new and unique information must be given.

 What is considered confidential information is not fully defined.  The Texas Supreme Court in In re Bass, 113 S.W.3d 735, 739 (Tex. 2003), however, gave us some indications of what may qualify.  The Texas Supreme Court gave six non-exclusive factors to determine if a trade secret, or confidential information, exists:

 (1) the extent to which the information is known outside of his business;

(2) the extent to which it is known by employees and others involved in his business;

 (3) the extent of the measures taken by him to guard the secrecy of the information;

 (4) the value of the information to him and to his competitors;

 (5) the amount of effort or money expended by him in developing the information; and

 (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. 

In re Bass, 113 S.W.3d at 739. 

 Employers need to be careful if they want their existing employees to sign covenants not to compete. Signature alone does not mean there is a valid and enforceable contract. New confidential consideration must be given—otherwise, all you have is just a piece of paper. 

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