Texas Non-compete Agreements In The Context Of A Sale Of A Business

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

A non-compete signed by an owner selling a business is quite different than one signed by an employee. Marsh USA Inc., 354 S.W.3d at 790 n.5 (noting that section 15.50 does not address the “distinction between what type of agreement is enforceable to protect goodwill in the context of the sale of a business and the context of a post-employment restriction”); Hill v. Mobile Auto Trim, Inc., 725 S.W.2d 168, 177 (Tex. 1987) (Gonzalez, J., dissenting) (noting that courts “scrutinize covenants not to compete in employment relationships more closely than covenants not to compete associated with the sale of a business”), superseded by statute, TEX. BUS. & COM. CODE § 15.50(a). Courts have been more inclined to enforce a long or limitless time period barring competition after a sale of a business. See, e.g., Oliver v. Rogers, 976 S.W.2d 792, 801 (Tex. App. – Houston [1st Dist.] 1998, pet. denied) (holding that a lack of a time limitation did not render non-compete unreasonable as a matter of law); Greenstein v. Simpson, 660 S.W.2d 155, 159 (Tex. App. – Waco 1983, writ ref’d n.r.e.) (“[A] person may agree [ ] in connection with the sale of his business[ ] not to re-enter a similar competitive business for the remainder of his life.”); York v. Dotson, 271 S.W.2d 347, 348 (Tex.Civ.App. – Fort Worth 1954, writ ref’d n.r.e.) (“One may lawfully agree not to compete in a particular business, in a reasonably limited territory, during the remainder of his life. Such contracts are held not to be in restraint of trade.”); Clay v. Richardson, 290 S.W. 235, 236 (Tex.Civ.App. – Fort Worth 1926, writ dism’d w.o.j.) (upholding covenant of theater seller never to open a theater again in town where theater was located).

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