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Texas appeals court’s decision shows importance of wording in noncompete agreements

A recent decision by a Texas appeals court demonstrates that the wording of a noncompete agreement must be precise.

In the case, East Texas Copy Systems, Inc. v. Player, the Court of Appeals in Texarkana ruled that a noncompete agreement was nonbinding due to the language used in the agreement.

As part of the sale of a business, the buyer agreed to employ the seller for four years, and the seller agreed not to compete with the buyer in a certain geographic area for a two year period. The noncompete clause stated that if the seller’s employment was terminated “for any reason other than a for cause termination” within two years, then the noncompete clause would no longer be binding. The parties also signed a separate noncompete agreement with identical language regarding the agreement being nonbinding if the seller was terminated for any reason other than for cause.

The seller voluntarily resigned his employment within two years of entering into the agreement and entered into competition with the buyer.

The seller filed a lawsuit seeking a declaration that the noncompete clauses were nonbinding, and the buyer asked the court to enforce the clauses. The trial court found that the seller was not bound by the noncompete agreement. The buyer appealed, arguing that to allow the seller to voluntarily end his employment and begin competing would thwart the purpose of the agreement. The court disagreed, noting that the agreements between the parties covered other issues besides the agreement not to compete. The court held that the plain language of the clause allowed the seller to compete, because both parties agreed that the employment had terminated without cause.

The case illustrates the importance of making sure that a noncompete agreement actually protects the interests that the parties intend to protect.

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