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Is An Employer Promise Required At All?

Although Sheshunoff was clear that a covenant must still contain a promise from the employee that the covenant is designed to enforce (e.g., a promise not to disclose confidential information or misuse goodwill), Sheshunoff was less clear on whether a covenant must still contain an explicit promise from the employer to provide confidential information or other consideration giving rise in an interest in restraining competition, such as goodwill. In fact, Sheshunoff explicitly acknowledged that a covenant not to compete could be supported by an otherwise enforceable unilateral contract formed when the employer provides the employee with confidential information and thereby triggers the employee’s return promise not to disclose it. See Sheshunoff 209 S.W.3d 644, 651 (Tex. 2006) (“There is no sound reason why a unilateral contract made enforceable by performance should fail under the Act.”). 

This lack of clarity has prompted disagreements among lower courts as to whether an explicit promise by the employer is required at all. Compare Hardy v. Mann Frankfort Stein & Lipp Advisors, Inc., 2007 WL 1299661, *9 (Tex. App.—Houston [1st Dist.] 2007, pet. granted, argument heard Nov. 13, 2008) (lack of explicit promise to provide confidential information fatal to non-competition agreement, notwithstanding the fact that the employer in fact provided the employee with confidential information) with Shoreline Gas, Inc. v. McGaughey, 2008 WL 1747624, *4-8 (Tex.App.—Corpus Christi, April 17, 2008, no pet.) (unpublished) (lack of explicit promise not fatal to non-compete, where employer in fact provided employee with confidential information) and In re Electro-Motor, Inc., 390 B.R. 859 (Bankr. E.D. Tex. 2008) (finding an otherwise enforceable agreement based on the employee’s promise not to disclose confidential information, despite that there was “no express provision by which [the employer] directly promised to provide confidential information to [the employee]”); cf. Powerhouse Productions, Inc. v. Scott, __ S.W.3d __, 2008 WL 3196174, *14-15 (Tex.App.—Dallas, Aug. 8, 2008, no pet. h.) (non-compete unenforceable where there was conflicting evidence over whether the employer actually provided the employee with confidential information and the only consideration recited in the agreement was the opportunity to become a jetpack pilot); Wood v. Reserve First Partners, Ltd., 2007 WL 2199901, *3 (Tex. App.—Beaumont 2007, n.p.h.) (lack of explicit promise to provide confidential information not fatal to non-compete, given that the employment agreement was not an at-will agreement and the employer in fact provided the employee with confidential information).

New Focus on Reasonableness

Regardless of the outcome of the technical debate among the lower courts, it should be remembered that unreasonable covenant terms will not be enforced under any circumstance. In fact, in Sheshunoff, the Texas Supreme Court specifically noted that the “core” question for covenants not to compete in Texas should be whether the covenant’s restrictions are reasonable. In addition to this somewhat specific admonition to trial courts, Sheshunoff’s elimination of the “enforceable when made” defense means that parties should be prepared to litigate the reasonableness of a covenant’s restrictions. For a collection of Texas cases discussing reasonableness, please see our Texas Covenants Update.

Questions

The foregoing is not intended as legal advice. If you have questions regarding a covenant not to compete or any other matter relating to fair competition, please contact one of our attorneys.