Essentials of Texas Non-Compete Litigation

Study Guide

Part 1 – What is the point of this series?

Key Points:

Review Section _______ and Section _______ of the Texas Business and Commerce Code

This video series will help you because:

1. ________________________________________

2. ________________________________________

3. ________________________________________

But you should not rely on these videos as legal advice

Part 2 – The three key questions in the initial non-compete consultation

Question 1: What company ___________________ did the employee take?

o You may want to get a ____________________ ______________________ involved

Question 2: Is there evidence the employee has taken her _________________ with her?

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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o If the answer is Yes, the employer can probably get a ______________________ _______________________ to stop the employee

Question 3: Is the non-compete enforceable _____ ________________________?

Some Pertinent Legal Authorities:

Brookshire Bros. v. Aldridge, 438 S.W.3d 9, 20 (Tex. 2014) (duty to preserve evidence)

Federal Rule of Civil Procedure 37(e) (sanctions for failure to preserve evidence)

Part 3 – Is the non-compete enforceable as written?

Key Points:

Start with requirements of Texas Business and Commerce Code Section ____________

Five things to look for:

1. Express or implied __________________

2. Did the employer actually provide __________________________?

3. The ___________ ____________________ of the non-compete

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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4. How does the geographic limitation line up with the employee’s __________________ _______________ _____________________?

5. The __________ ____ _________________ actually restrained by the non-compete

Additional Reading:

What a Litigator Looks For in the Typical Texas Non-Compete

Part 4 – The typical way to meet the “ancillary” requirement for a Texas non-compete

Key Points:

Have a non-compete tied to a _________________________ agreement

First question: Whether the agreement has ____________ or ___________ promise

Implied promise: When the ____________________ __________________________ indicate that the employee’s job ________________________ ____________________________ providing confidential information.

Second question: whether the employer actually _________________________ the promised confidential information

A related way to meet the ancillary requirement: tie the non-compete to an agreement to provide ________________________ ___________________________

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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Some Pertinent Legal Authorities:

TEX. BUS. & COM. CODE § 15.50(a)

Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 655 (Tex. 2006) (agreement becomes enforceable once the employer provides confidential information and specialized training as promised)

Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 850-51 (Tex. 2009) (agreement without express promise was enforceable where the circumstances surrounding employment indicated that it necessarily involved providing the employee confidential information before he could perform the work he was hired to do)

Neurodiagnostic Tex, LLC v. Pierce, 506 S.W.3d 153, 164-65 (Tex. App.—Tyler 2016, no pet.) (agreement to provide specialized training was an “otherwise enforceable agreement” where the employer actually provided the promised training and there was evidence the training was specialized)

Additional Reading:

Recent Non-Compete Case Teaches Importance of Providing Specialized Training

Part 5 – Other ways to meet the “ancillary” requirement for a Texas non-compete

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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Key Points:

Another important way to meet the Ancillary Requirement is to tie a non-compete to the sale of the ___________________________

A related way is to tie the non-compete to some kind of ___________________ _______________________ interest, such as __________ ____________________

Marsh did away with this “______ _______ ____” requirement

Marsh said the non-compete just has to be “___________________________ _____________________” to an interest worthy of protection

Some Pertinent Legal Authorities:

Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011)

Part 6 – The reasonable time period requirement for a Texas non-compete

Key Points:

The party trying to enforce the non-compete can cite Texas cases holding that non-competes of ___ to ___ years are reasonable

But remember the party seeking to enforce the typical Texas non-compete has the ____________ ___ ___________ on reasonableness

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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Be prepared to offer _____________________ on the reasonableness of the time period

As a rule of thumb, ___ years is a good dividing line, but it is a fact-intensive issue.

Some Pertinent Legal Authorities:

Stone v. Griffin Comm. & Security Sys., Inc., 53 S.W.3d 687, 696 (Tex. App.—Tyler 2001, no pet.) (“two to five years has repeatedly been held a reasonable time restriction in a non-competition agreement”; five years was reasonable where there was “ample evidence” that it would take five years for the information received by the employees to become outdated)

CDX Holdings, Inc. v. Heddon, No. 3:12-CV-126-N, 2012 WL 11019355, at *9 (N.D. Tex. Mar. 2, 2012) (plaintiffs failed to meet burden to show one-year limitation was reasonable, where there was testimony that the information was confidential and would be valuable to competitors, but there was also testimony that the information was “continually changing and updated” and had a “short shelf life”)

Part 7 – The reasonable geographic area requirement for a Texas non-compete

Key Points:

The geographic area is usually reasonable if it coincides with the actual _____________ _____________________ the employee covered

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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The sales territory rule may not apply to a ______-level _____________________.

Another situation that does not fit the sales territory rule is a company that does business ____________________ ___ ______________.

There are even cases that say the non-compete doesn’t need an express geographic limitation if it has some other limitation that serves the same purpose, like a limitation on the _________ ___ ______________________.

Some Pertinent Legal Authorities:

Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 660 (Tex. App.—Dallas 1992, no writ) (reasonable geographic area generally considered to be the territory in which the employee worked for the employer)

Gallagher Healthcare Ins. Servs. v. Vogelsang, 312 S.W.3d 640, 654-55 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (“A number of courts have held that a non-compete covenant that is limited to the employee’s clients is a reasonable alternative to a geographical limit”)

M-I LLC v. Stelly, 733 F.Supp.2d 759, 799-800 (S.D. Tex. 2010) (taking “holistic” approach and holding that absence of geographic restriction did not render non-compete unenforceable where time period was only six months, employee held upper management position, and employee had access to company’s trade secrets)

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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Ameripath, Inc. v. Hebert, 447 S.W.3d 319, 335 (Tex. App.—Dallas 2014, pet. denied) (broad geographic area was reasonable considering employee was a member of employer’s “highest level management team”)

McKissock, LLC v. Martin, 267 F.Supp.3d 841, 856-57 (W.D. Tex. 2016) (nationwide scope was reasonable given national client base and employee’s upper-level position)

TransPerfect Translations, Inc. v. Leslie, 594 F.Supp.2d 742, 754-55 (S.D. Tex. 2009) (geographic area was unreasonably broad where salesman worked nationwide but was not part of upper management)

Part 8 – The reasonable scope requirement for a Texas non-compete

Key Points:

An __________-__________ exclusion is generally unenforceable.

Wolfe’s First Law again: you can’t take your _________________ with you.

Some Pertinent Legal Authorities:

John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 85 (Tex. App.—Houston [14th Dist.] 2010, no pet.) (“The Texas Supreme Court has held that an industry-wide exclusion is unreasonable”) (citing Peat

Marwick Main & Co. v. Haass, 818 S.W.2d 381, 386-88 (Tex. 1991)).

Wright v. Sport Supply Group, Inc., 137 S.W.3d 289, 298 (Tex. App.—Beaumont 2004, no pet.) (non-compete that was not limited to

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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customers employee had dealings with while employed by company was unreasonably broad).

EMS USA, Inc. v. Shary, 309 S.W.3d 653, 660 (Tex. App.—Houston [14th Dist.] 2010,

no pet.) (enforceability of non-compete would turn on whether it extended to

customers that employee had no dealings with)

Republic Servs., Inc. v. Rodriguez, No. 14-12-01054-CV, 2014 WL 2936172, at *8 (Tex. App.—Houston [14th Dist.] June 26, 2014, no pet.) (mem. op.) (distinguishing Stroman and reversing summary judgment that non-compete was an industry-wide exclusion, where employer offered evidence of companies in the industry that were not competitors)

M-I LLC v. Stelly, 733 F.Supp.2d 759, 796-97 (S.D. Tex. 2010) (distinguishing Stroman and holding that six-month restriction on engineer providing “well completion services” was not an industry-wide exclusion encompassing the oil and gas business)

Additional Reading:

Wolfe’s First Law of Texas Non-Compete Litigation

Part 9 – The Burden of Proof for enforceability of a Texas non-compete

Key Points:

Many Texas cases recite that enforceability of a non-compete is a question of ______.

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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But if there are disputed __________ ___________________ it can be a question of fact.

The Texas non-compete statute itself talks about the _______________ ___ _________ for enforceability.

Some Pertinent Legal Authorities:

TEX. BUS. & COM. CODE § 15.51(b) (“If the primary purpose of the agreement to which the covenant is ancillary is to obligate the promisor to render personal services, for a term or at will, the promisee has the burden of establishing that the covenant meets the criteria specified by Section 15.50 of this code. . . . For the purposes of this subsection, the ‘burden of establishing’ a fact means the burden of persuading the triers of fact that the existence of the fact is more probable than its nonexistence.”)

Additional Reading:

Blown Call: The Thing Texas Courts Get Wrong About Non-Competes

Part 10 – What Happens if the Non-Compete is Unenforceable as Written

Key Points:

The employer can still get __________________ of the non-compete

The Texas non-compete statute says the court ________ reform the non-compete

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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If the non-compete is unreasonably broad, you can’t get _______________ that occur before _____________________.

The employer can still potentially get a ______________________ ____________________.

Some Pertinent Legal Authorities:

TEX. BUS. & COM. CODE § 15.51(c) (“. . . the court may not award the promisee damages for a breach of the covenant before its reformation and the relief granted to the promisee shall be limited to injunctive relief”)

Note that the non-compete statute does not authorize the employer to recover attorneys’ fees for a breach. Glattly v. Air Starter Components, Inc., 322 S.W.3d 620, 645 (Tex. App.—Houston [1st Dist.] 2010, pet. denied); Perez v. Tex. Disposal Sys., Inc., 103 S.W.3d 591, 594 (Tex. App.—San Antonio 2003, pet. denied).

The employee can recover attorneys’ fees if the employer attempts to enforce a non-compete it knows is unreasonably broad. See TEX. BUS. & COM. CODE § 15.51(c)

Additional Reading:

The Plain-Language Non-Compete

Part 11 – Witness Preparation in Texas Non-Compete Litigation

Key Points:

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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The harder part of witness preparation is preparing the witness to deal with ________________ ___________________.

Make sure the _________________ support your theory.

Prepare your client not to __________ ____________ from that theory.

Additional Reading:

Recent Case Shows How to Enforce the Typical Texas Non-Compete

How (Not) to Handle Bad Emails in Litigation

Part 12 – The Temporary Injunction Hearing in Texas Non-Compete Litigation

Key Points:

Don’t rely solely on cases that say irreparable injury is ________________ when there is a breach of a non-compete.

Don’t rely solely on the __________________ _____________________ doctrine to prove imminent harm.

Some Pertinent Legal Authorities:

Tranter, Inc. v. Liss, No. 02-13-00167-CV, 2014 WL 1257278, at *7 (Tex. App.—Fort Worth Mar. 27, 2014, no pet.) (mem. op.) (citing Texas cases for proposition that “[a] highly trained employee’s

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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continued breach of a noncompete agreement creates a rebuttable presumption that the employer is suffering an irreparable injury”)

Wright v. Sport Supply Group, Inc., 137 S.W.3d 289, 294 (Tex. App.—Beaumont 2004, no pet.) (citing cases holding that employee’s breach of non-compete creates a rebuttable presumption that employer will suffer irreparable injury)

Cardinal Health Staffing Network, Inc. v. Bowen, 106 S.W.3d 230, 236 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (holding that even if employer was entitled to presumption of probable injury from proof that highly trained employee was breaching non-compete, the employee rebutted the presumption)

Fantastic Sams Franchise Corp. v. Mosley, No. H-16-2318, 2016 WL 7426403, at *5 (S.D. Tex. Dec. 23, 2016) (finding that employee’s breach of non-compete by continued operation of nearby competing hair salon would case irreparable harm that could not be fully remedied by damages)

DGM Servs., Inc. v. Figueroa, No. 01-16-00186-CV, 2016 WL 7473947, at *4-5 (Tex. App.—Houston [1st Dist.] Dec. 29, 2016, no pet.) (mem. op.) (rejecting argument that breach of a non-compete creates a presumption of harm that relieves the plaintiff of its burden to offer evidence, and rejecting argument based on “inevitable disclosure doctrine”)

BM Med. Mgmt. Serv., LLC v. Turner, No. 05-16-00670-CV, 2017 WL 85423, at *3 (Tex. App.—Dallas Jan. 10, 2017, no pet. h.) (mem. op.) (trial court was within its discretion to deny a temporary injunction

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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based on evidence that employee had not used any confidential information and was not soliciting employer’s clients)

Additional Reading:

Head First Into the Abbiss: Temporary Injunction Rulings in Recent Texas Non-Compete Cases

Injunction Junction, What’s Your Function?

Part 13 – Damages in Texas Non-Compete Litigation

Key Points:

The most common type of damage theory is ______________ _________________, which must be proven with _____________________ ______________________.

It is usually best to avoid trying to measure lost profits by the _____________________’s lost profits.

Some Pertinent Legal Authorities:

Horizon Health Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017)

Motion Med. Tech., LLC v. Thermotek, Inc., 875 F.3d 765 (5th Cir. 2017)

Additional Reading:

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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Horizon Case Addresses Causation Conundrum in Departing-Employee Litigation

Nothing But Net: Fifth Circuit Reverses Gross Profits Award

Part 14 – The Jury Trial in Texas Non-Compete Litigation

Key Points:

Does the issue of _____________________ of the non-compete go to the jury?

If the court has granted ____________________ _____________________ then it doesn’t need to go to the jury.

If you have the _______________ ___ __________ on enforceability, the safer thing is to submit the issue to the jury.

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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Part 15 – Other Issues in Texas Non-Compete Litigation

Key Points:

The employer will sometimes claim that a customer list or other information taken by the employee is a ____________ _______________.

The employee owes the employer a or of limited ________________ duty.

An employee is free to make ____________________ to compete while still employed.

Breach of a ___________________ agreement is often an issue as well.

Some Pertinent Legal Authorities:

Definitions of “trade secrets”o Texas Uniform Trade Secrets Act (TUTSA): Tex. Civ. Prac. &

Rem. Code § 134A.002(6)o Defend Trade Secrets Act (DTSA): 18 U.S.C. § 1839

“Fiduciary Duty Lite”:o Johnson v. Brewer & Pritchard, PC, 73 S.W.3d 193, 202 (Tex.

2002)o Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 512 (Tex. App.

—Houston [1st Dist.] 2003, no pet.)

Additional Reading:

Trade Secrets 101 – What Texas Businesses and Lawyers Need to Know

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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Fiduciary Duty Lite: What Employees Can and Can’t Do Before Leaving

The Matrix: Making Sense of the Patchwork of Employee Confidentiality Duties

Essentials of Texas Non-Compete Litigation – Study GuideZach Wolfe – “That Non-Compete Lawyer”

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