November, 2012 | The Law Offices of Gregory D. Jordan

Texas Supreme Court Case Makes Noncompete Agreements Easier to Enforce

A case last year from the Texas Supreme Court is favorable to employers regarding covenants not to compete. Noncompetition agreements are often included as ancillary agreements to certain otherwise enforceable contracts, such as employment contracts or agreements to sell a business. The case, Marsh USA, Inc. v. Cook, makes it easier for employers to enforce noncompete agreements, though it leaves some questions unanswered.

In 1994, the Texas Supreme Court established a two-prong test for whether a noncompete agreement is enforceable. The case, Light v. Centel Cellular Co. of Texas, held that for a noncompete to be enforceable, the consideration provided by the employer must be linked to the employer’s interest in restraining competition, and the noncompete clause must be intended to enforce the employee’s performance.

The Marsh case reversed an appellate decision that a grant of stock options failed the first prong of the Light test. The Texas Supreme Court held that the stock options were reasonably linked to the company’s desire to protect its goodwill, so the noncompete agreement was not unenforceable per se. However, the question of whether the second prong for enforceability had been met was remanded to the lower court.

The bottom line is that, the criteria for analyzing the enforceability of noncompete agreements has dramatically changed. While parties generally used to argue whether there was sufficient consideration for a noncompete, the arguments now are more likely to focus on whether the terms are reasonable.

Gregory D. Jordan is an Austin business attorney, Austin employment lawyer, and Austin business litigation lawyer. To learn more, visit

Chesapeake Loses in Bid to Void Oil and Gas Contracts

Chesapeake Energy Corp., the nation’s second-largest gas producer, has recently attempted to void hundreds of agreements with mineral rights owners, amid plummeting energy prices. In a recent case, the company found itself on the losing end of a court battle.

Chesapeake signed a letter of intent with family-owned Peak Energy Corp., based in Plano, Texas, to acquire drilling rights on 5,405 acres of land. When prices plummeted, Chesapeake tried to walk away, claiming that the letter of intent was not a binding contract. The Fifth Circuit Court of Appeals in New Orleans disagreed, holding that the contract was valid and that Chesapeake must pay $19.7 million, the difference between the amount of the offer and the value of the lease when the deal was canceled.

The Fifth Circuit decision affects the prime energy-producing states of Texas, Louisiana and Mississippi, and is likely to be influential in other Circuits where oil and gas are big industries.

Chesapeake is facing hundreds of similar lawsuits from landowners from Pennsylvania to Texas, as the company tries to void contracts that are no longer profitable now that the price of gas has dropped. In another case, the gas driller was ordered to pay more than $100 million to three landowners after the company did not follow through on a contract.

Chesapeake has lost 35 percent of its market value in the past year, as its stock price has dropped significantly.

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