Nuts and Bolts : Non-Solicitation vs. Non-Compete

Employers frequently require employees to enter into non-compete agreements, non-solicitation agreements, or a combination of both in order to protect trade-secrets and other valuable information.

Non-Solicitation Example:

Employee agrees that for a period of one year after the termination of his employment, whether voluntary or involuntary, he will not directly or indirectly call upon, solicit, divert, accept, or take away from Employer any individual, account, customer, company, partnership or any other entity to whom Employer rendered intermediary, consulting or brokering services, either on a fee for services or commission basis, during the course of his employment with Employer.

Non-Compete Example:

Salesperson agrees, upon termination of employment with company, and for a period of one year thereafter, she will not directly or indirectly compete with company in the Longview, Tyler, Marshall service area. Salesperson agrees that this paragraph prohibits her from accepting employment in the Longview, Tyler, Marshall service area from any mobile communications service provider, or any agent or reseller of a mobile communications service provider, as a salesperson, or in any other capacity that would give the salesperson customer contact or that would permit the use of the customer related information she acquired in the course of her employment with company.

Both provisions must comply with Texas Business and Commerce Code Section 15.50.

Disclaimer

Non-Competes and Rocket Packs

In Powerhouse Productions, Inc. v. Scott, the Dallas Court of Appeals affirmed a take-nothing judgment entered in favor of Defendant Eric Scott. Powerhouse builds rocket packs. (A rocket pack was piloted by 007 in Thunderball.) Scott began piloting the packs in the early 1990s, making over 400 flights throughout the world. Powerhouse charged clients between $15,000 to $25,000 per flight.

On February 4, 2004, Scott entered into a confidentiality and non-compete agreement with Powerhouse. The non-compete forbid Scott from competing with Powerhouse for a period of five years after the end of his employment. Scott and Powerhouse ended their relationship in November 2004.

In 2005 Scott went to work for Jet P.I., another rocket pack builder. After learning that Scott was making flights for Jet P.I., Powerhouse filed suit seeking to enjoin Scott from violating the non-compete agreement.

Section 15.50 of the Texas Business and Commerce Code provides: "a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or business interests of the promisee." As stated most recently by the Texas Supreme Court in Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 651 (Tex. 2006), the non-compete cannot be a stand-alone promise from the employee lacking any new consideration for the employer.” Id. Consideration from the employer “must give rise to the employer’s interest in restraining the employee from competing.” Id. at 648-49.

The Dallas Court of Appeals rejected Powerhouse's argument that providing Scott with confidential information and training pre-2004 could serve as consideration for the 2004 non-compete. Further, letting Johnson fly the pack, the Court reasoned, did not give rise to the Powerhouse's interest in restraining Scott from competing. The Court ruled that as there was no consideration to support the covenant not to compete, it was unenforceable.

Lessons to be learned from this opinion are: (1) an employer must provide something new to the employee to support a non-compete, past training or previous disclosure of trade secrets doesn't suffice; and (2) there must be a nexus between the consideration provided and the non-compete. Here the court ruled that flying the rocket pack did not give rise to a non-compete. Typically, a non-compete is designed to protect trade-secrets disclosed to the employee during the course of employment.

Disclaimer

Disclaimer

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