Court Issues Opinion in Texas Employment Case Involving Non-Compete Agreements
A non-compete clause is a contractual term limiting an employee’s ability to compete with an employer for a certain period of time after their employment ends. Non-compete clauses are often valid in Texas; however, there are bounds to their enforceability. Generally, a non-compete clause must be supported by valid consideration and be reasonable in time, geographic area and the scope of prohibited activities.
Businesses use non-compete clauses to ensure that the time and money they put into employee training does not benefit a competitor. Earlier this year, a state appellate court issued an opinion in a Texas employment dispute case requiring the court to determine the validity of a non-compete clause.
The Facts of the Case
The case involved two companies, both of which arranged to provide large retail stores with “in-store consumer experiences,” such as product demonstrations. Product Connections was a newer company founded by a former employee of Crossmark. Crossmark sued Produce Connections, its founder, and several employees who formerly were employed with Crossmark.
In this case, the matters at issue were Crossmark’s request for a preliminary injunction, ordering Product Connections to “produce company and personal digital storage devices for forensic review by Crossmark’s expert. Essentially, Crossmark wanted the court to order Product Connections’ employees to provide access to their phones and emails so that Crossmark’s experts could review all communication leading up to the employees’ departure.
In support of its claim, Crossmark presented the court with signed non-compete agreements. The non-compete agreements were valid for six months after the termination of employment. Crossmark alleged that several of the employees concealed the fact that they planned to leave Crossmark to join Product Connections.
The Standard Applied by the Court
A preliminary injunction is an order by the court commanding or prohibiting a party from taking certain actions. Preliminary injunctions essentially hold the status quo as the lawsuit progresses through the system.
In its opinion, the court explained that standard to obtain a preliminary injunction. More specifically, a party must meet each of the four elements:
- A cause of action against the defendant;
- A probable right to the relief sought; and
- A probable, imminent, and irreparable injury in the interim.
Essentially, a party must show that they have a good chance of success on their underlying claim and that monetary damages would not be a good substitute for the relief sought.
The Court’s Opinion
Product Connections challenged the second and third elements of the preliminary injunction. Specifically, Product Connections argued that Crossmark did not have a probable right to seeking relief. The court disagreed.
The court explained that one of the claims Crossmark brought was the theft of trade secrets. Specifically, Crossmark claimed that Product Connections misappropriated its “playbook,” which enabled them to compete more effectively. The court found it relevant that several of the Product Connection employees worked with the same clients when they were employed with Crossmark and that these same employees concealed their intentions to join Product Connections. The court also noted that the timing of Product Connection’s new digital demo product was close in time to when the employees joined Product Connections and was “eerily similar” to a similar product released by Crossmark.
The court then went on to discuss whether Crossmark could potentially suffer probable, imminent, and irreparable injury absent a preliminary injunction. Again, the court found for Crossmark. Here, the court found it important that “the use of confidential information in cases such as this has been described as the epitome of irreparable injury.”
While this is a brief summary of a complex employment law case, it illustrates how a non-compete agreement can protect a business’s interests.
Are You Dealing With an Employment Dispute?
If you are dealing with an employment dispute or fear that one may be on the horizon, reach out to Austin employment lawyer Gregory D. Jordan. The Law Offices of Gregory D. Jordan has represented the interests of businesses and employees for more than three decades. Attorney Jordan commands an impressive knowledge of employment laws. He uses this familiarity to draft effective and legally sound agreements on behalf of employers, ensuring their interests are protected in the future. To learn more and to schedule a consultation with Attorney Jordan, call 512-419-0684. You can also reach the firm through its online contact form.