Non-Recruitment Covenants Under Texas Law

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.

Texas courts generally enforce employee non-recruitment or non-solicitation agreements as they would any other contract, holding that they are not restraints of trade and, therefore, not subject to the requirements of section 15.05(a) of the Texas Business and Commerce Code. See Spicer, 2006 WL 1751786 at *4 (finding such an agreement enforceable as an ordinary contract); Nova Consulting Group, Inc. v. Engineering Consulting Servs., Ltd., 2005 WL 2708811, *17-18 (W.D. Tex. 2005) (finding such an agreement enforceable as an ordinary contract after reviewing Texas law); see also Smith, Barney, Harris Upham & Co., Inc. v. Robinson, 12 F.3d 515, 518 (5th Cir. 1994) (finding that employee “nonrecruitment covenants . . . do not necessarily restrict a former employee’s ability to compete . . . [and] should not significantly restrain trade”).

There is, however, one Texas court that analyzed such an employee non-recruitment agreement under section 15.50(a) of the Texas Business and Commerce Code, but found it enforceable anyway. See Totino, 1998 WL 552818, at *8–9. And, in the 2011 Marsh USA Inc. decision, the Texas Supreme Court did, in fact, actually state that “[c]ovenants that place limits on former employees’ professional mobility or restrict their solicitation of the former employers’ customers and employees are restraints on trade and are governed by the Act.” 354 S.W.3d at 768 (italics added). Whether other courts will view this as pure dicta (and perhaps unintended dicta at that) is yet to be seen.

Where the requirements of a temporary injunction are satisfied, an ex-employee who breaches a non-recruitment agreement may be enjoined from further breaches, as may anyone working in concert with him, including his new employer. Compare Totino, 1998 WL 552818, at *8–9 (affirming grant of injunction barring not only ex-employees who had signed non-recruitment agreements, but also their new employer, from soliciting the former employer’s current employees) (not designated for publication) with Spicer, 2006 WL 1751786 at *4-5 (finding such a non-recruitment agreement enforceable under Texas law but refusing to enforce it through a preliminary injunction because the court concluded that the employer did not clearly demonstrate that a substantial threat existed that it would suffer irreparable injury if the preliminary injunction was denied.).

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