Originally published by Leiza Dolghih.
A recent decision from the Thirteenth Court of Appeals in Texas serves as a cautionary tale for Texas employers seeking to enforce their non-compete agreements. In this case, a company that provided surgical assistants to surgical facilities and physicians sued a former employee for breaching his 2-year non-compete covenant, which prohibited him from “in any way” offering his services to any “client institutions or client surgeons” of his former employer.
At a bench trial, the employee testified that he would not be able to be employed in his field where he lives and that the covenant could potentially hinder his ability to perform cardiovascular procedures at all. He also testified that the physicians would be negatively affected as there were only a limited number of surgical assistants available in his area. The trial court also heard evidence that the “confidential information” that the employer claimed was provided to the employee as a justification for the non-compete restraints, was either not provided to him or was not confidential because it was available online. Based on this evidence, the trial court found that the non-compete covenant contained restrictions that were greater than necessary to protect the employer’s legitimate business interests, and refused to reform (i.e. rewrite) the agreement to make it more reasonable.
The Court of Appeals affirmed the district court’s decision to deny reformation finding that:
“the covenant not to compete here would hinder legitimate competition between businesses and the mobility of skilled employees and is therefore unenforceable. When a covenant not to compete is not necessary to protect the employer’s legitimate business interests, it cannot be reformed.”
However, the trial court did not stop at invaliding the non-compete agreement. After finding the agreement not enforceable, it considered whether the employee should recover the attorney’s fees he incurred in defending the lawsuit under section 15.51(c) of the Texas Covenants Not to Compete Act, which states that a court may award an employee his or her attorney’s fees incurred in defending against an unenforceable non-compete agreement if: (1) the employee establishes that the employer knew at the time of the execution of the agreement that the covenant did not contain limitations as to time, geographical area, and scope of activity to be restrained that were reasonable and the limitations imposed a greater restraint than necessary to protect the goodwill or other business interest of the employer, and (2) the employer sought to enforce the covenant to a greater extent than was necessary to protect the goodwill or other business interest of the employer.
It turns out that the employer in this case had previously attempted to enforce an identical non-compete covenant against another surgical assistant and lost the case, with the trial court finding that the non-compete was against the public interest. The trial court in that case found that:
“enforcement of the covenant not to compete in Corpus Christi would harm the public interest in the Corpus Christi market by resulting in a reduction in the quality of health care and continuity of care by depriving surgeons of their choice of surgical assistants, which has the effect of depriving the public access to surgeons with surgical assistants of superior knowledge and skills related to and inherent to their relationships to these surgeons and procedures performed.”
Even after the employer received the court’s ruling in that case, finding its non-compete agreement unenforceable, the employer proceeded with entering into the same agreement with the employee at issue here. The trial court, therefore, found that:
“American was aware that the covenant not to compete contained in Villareal’s employment agreement was unenforceable as written, yet American did not change the covenant going forward and instead further sought to enforce it against Villareal. Accordingly, Villareal met his burden under § 15.51(c) to show that American attempted to enforce the covenant to a greater extent than necessary to protect any goodwill it believed it had.”
BOTTOM LINE: Texas employers seeking to enforce non-compete agreements should be aware that in certain limited circumstances employees may be entitled to recover attorney’s fees they incur in defending against overbroad, unreasonable and unenforceable non-compete agreements. Therefore, if an employer’s non-compete is reformed or invalidated by a court, and the employer does not intend to appeal the court’s decision, it should revise its agreements in light of the court’s ruling and have its employees sign the revised non-compete agreements.
Leiza Dolghih is a Labor and Employment Board Certified partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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