Originally published by Zach Wolfe.
Do you have a college degree in restaurant and hotel management? Have I got a deal for you.
Work as an assistant manager at Buc-ee’s, the well-known Texas highway stop with the clean restrooms, massive selection of snacks, and funny billboards. On top of a weekly salary of $862.75, you will get a monthly bonus, I mean, “retention payment,” of 1.2652% of the store’s monthly net profit.
Naturally, your employment will be at-will, meaning Buc-ee’s can fire you at any time for any reason, or for no reason. That’s ok, because you can also quit for any reason, or for no reason.
But here’s the catch. If you quit or get fired in less than four years, or if you don’t give Buc-ee’s written notice at least 6 months before quitting, you have to pay back all of the retention payments you received, plus interest and attorneys’ fees.
In other words, you can check out any time you like, but you can never leave.
That was the basic deal in Rieves v. Buc-ee’s, a case recently decided by the Houston Court of Appeals (14th District).[1] Rieves, the employee, received about $67,000 in retention payments, paying federal income taxes on them, but quit the job three years in. Buc-ee’s sued her to recover the $67,000 plus interest and attorneys’ fees.
That doesn’t sound fair, you may be thinking, but this is Texas, and a deal’s a deal, right?
Well, yes, “that’s not fair” is usually not a defense to enforcement of a contract, and “unfairness” is not an exception to the at-will employment doctrine.
But it’s not just a question of enforcing the parties’ contract. The public’s interest in free competition is also at stake. That’s why Texas has a statute that says every contract in restraint of trade or commerce is illegal. The statute has an exception for non-competes, but the non-compete has to be reasonable in scope.
So, Rieves argued that the contract’s requirement to pay back the retention payments was an unenforceable restraint of trade, and the Houston Court of Appeals agreed.
Limitations on employee mobility must meet the reasonableness requirement for non-competes
Under Texas case law, the court said, limitations on employee mobility are unenforceable unless they fall within the statutory exception for non-competes. This rule applies not only to provisions that expressly limit employee mobility, but also to damages clauses that impose a “severe economic penalty” on a departing employee. Because the contract imposed a severe economic penalty on Rieves for exercising her right to quit, the court reasoned that the contract was unlawful unless it met the reasonableness requirements for non-competes.
The problem for Buc-ee’s? The contract had no limits on the employee’s repayment obligation based on whether her new employment involved competitive activities or was located within certain areas. Not only that, the contract gave Buc-ee’s the right to enforce the repayment provision even if, for example, Buc-ee’s fired the employee without cause on the last day of the four-year period, or if the employee quit to take a noncompeting job, or no job at all.
This was just too much, even for the relatively conservative 14th Court of Appeals.
“These provisions go far beyond protecting any legitimate competitive interest of Buc-ee’s,” Justice Busby wrote for the court, “impose significant hardship on Rieves by clawing back substantial compensation already paid to her and on which she had paid taxes, and injure the public by limiting choice and mobility of skilled employees.” The court therefore rendered judgment that the repayment provision of the contract was unenforceable.
That sounds like a fairly common-sense application of Texas law, right?
What about ExxonMobil v. Drennen?
But those of you who follow Texas non-compete law may be thinking, what about Drennen?
Exxon Mobil v. Drennen was a Texas Supreme Court case decided in 2014.[2] Technically, it addressed a narrow issue only a lawyer could love: choice of law. The contract at issue in Drennen required an executive to forfeit stock options if he went to work for a competitor. New York law allows that sort of thing, and the legal issue presented was whether the Texas court should apply New York law or Texas law.
I won’t get down in the weeds of the choice of law analysis, but the key was that one step was to ask whether Texas has any “fundamental policy” against this kind of forfeiture provision.
Some of you may recall a certain statute that says something about, what was it, restraints of trade or commerce being unlawful? That kind of sounds like a “fundamental policy” to me.
But the Texas Supreme Court didn’t see it that way. It held in Drennen that there was no fundamental Texas policy that would bar the forfeiture clause, and that cleared the way for New York law to apply.
As explained here, I thought Drennen got it wrong on this point. In my view, Texas courts should take the legislature’s ban on restraints of trade more seriously. But of course I don’t get to make the rules. And while bloggers and pundits are free to criticize, the Texas Courts of Appeals have to follow what the Texas Supreme Court says.
So if Drennen said the forfeiture of employee benefits does not violate Texas public policy, why didn’t that control the outcome in the Buc-ee’s case?
The Buc-ee’s court found that Drennen did not apply. First, the type of compensation at issue was different. In Drennen, it was forfeiture of future unvested stock options, while in Buc-ee’s it was money already paid to the employee, on which she had already paid income taxes.
Second, the Buc-ee’s contract was different because, unlike the stock option provision in Drennen, it did not necessarily reward the employee for her loyalty. The contract required the employee to pay back a substantial part of her compensation even if Buc-ee’s fired her, and the longer she worked at Buc-ee’s, the larger the penalty if she decided to quit.
These sound like reasonable distinctions, but would the Texas Supreme Court agree? I wouldn’t be surprised to see Buc-ee’s petition the Texas Supreme Court to take the case, arguing that it conflicts with Drennen.
Then we may really see if the Texas prohibition of restraints of trade has any teeth.
The Bigger Picture
The Buc-ee’s decision shows that some Texas courts still take the legislature seriously when it says that restraints of trade are unlawful. It’s an important decision, because it restores some balance to the basic social contract that Texas law provides to businesses and employees.
The at-will employment doctrine and the ban on restraints of trade are two sides of this coin. What’s in it for business is they can hire and fire at will, with only some narrow exceptions (like unlawful discrimination).
The at-will employment doctrine is widely known but not fully appreciated. Everybody knows that employers can fire employees at will, yet with most people that knowledge really hasn’t sunk in. In the back of their minds, employees still seem to feel that employers can’t fire them for a bad reason.
But they can, and that’s a big deal. I would even say the at-will employment doctrine is the most serious source of injustice in the workplace in America.[3]
Think about it. At-will employment means you can slave away for the same company for twenty years and get fired because the owner wanted to make room for his son who just got out of college and needs a job. It’s just not fair!
Yet I fully support the at-will employment doctrine. While at-will employment is a source of great injustice on the “micro” level, we accept it as a necessity for its “macro” benefits, which fall into two categories.
First, there is the judicial capability problem. While judges sometimes speak of at-will employment as if it were some immutable law of nature, it isn’t. Courts could adopt a common-law rule that employers must have good cause to fire an employee. But imagine all the lawsuits that would follow. And imagine all the inconsistent and subjective rulings by judges and juries on “good cause.”
Second, we accept at-will employment for its economic benefits. The ability to hire and fire freely boosts overall economic growth and employment, benefitting everyone. If employers could only fire for good cause, think of how reluctant they would be to hire in the first place. At-will employment also encourages employee mobility, which increases competition.
But this gets to the other side of the deal: at-will employment hast to be a two-way street. Just as employers can fire for any reason, or for no reason, employees have to be free to say “take this job and shove it.” Not only that, employees must be able to leave and work for a competitor (unless there is a reasonably limited non-compete). That’s the balance that makes at-will employment work.
The basic problem in Buc-ee’s was that the employer tried to upset this balance. Buc-ee’s wanted to have its beef jerky and eat it too: we can fire you any time for any reason, but we’re also going to make it cost-prohibitive for you to decide to leave.
This was just too much for the Houston Court of Appeals. You can’t always get what you want.
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These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.
[1] Rieves v. Buc-ee’s Ltd., No. 14-15-01061-CV, 2017 WL 4557796 (Tex. App.—Houston [14th Dist.] Oct. 12, 2017).
[2] Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014).
[3] This is not to downplay harassment and discrimination, which are certainly real problems.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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