Time to Review Nonsolicitation Covenants
I’ve found that it’s fairly common for Texas employers to have questions
about the enforceability of a non-compete, but not so common for them to ask
about the enforceability of their non-solicitation agreements. Yet, I often
find myself in a courtroom relying on those non-solicits to try to get a
departed employee to stop contacting a client’s customers or employees.
Up until now, an employee’s legal authority for challenging non-solicits
has been the Texas Supreme Court’s 2011 decision in Marsh v. Cook, where the Court stated (without much discussion)
that covenants not to solicit customers or employees are considered “restraints
on trade” in the state of Texas, and are therefore governed by the Texas
Covenant Not to Compete Act (“CNCA”). The CNCA looks at restraints on trade in
terms of reasonableness: does the covenant restrain only a reasonable scope of
the employee’s activity?
We have had few published decisions showing how Marsh should be applied until a few weeks ago, when a Houston court
of appeals relied on Marsh to
invalidate a non-solicit.
As is typical in such cases, Cooper
Valves, LLC and Barry Don Hoeffner v. ValvTechnologies, Inc., --- S.W.3d
---- (2017), 2017 WL 3090159 (Tex. App.—Houston [14th Dist.] July 20, 2017), was
a battle between competitor companies, in this case two companies in the
industrial valve business. An employee for one of the companies left to work
for a competitor, and immediately started soliciting some of his former
employer’s customers. The former employer sought — and obtained — a temporary
injunction prohibiting the employee from doing this.
Cooper Valves, the new employer, appealed and the appeals court,
applying Marsh, determined that the
non-solicit was unenforceable because it did not contain any geographic or time
limitations, or specify any of the types of customers or employees that were
off-limits to the employee.
Nonsolicitation covenants can be valuable tools for an employer to
protect its business and goodwill when an employee leaves the company. However,
employers that want to have this tool in their arsenal should consider the
reasonableness of their non-solicits, because in the event of litigation, there
is new authority for reviewing nonsolicitation covenants under the CNCA.