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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.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.