Landmark Texas Supreme Court Noncompete Case Decided
// Dallas, Texas, United States // Attorney Keith Clouse // Keith Clouse
The Texas Supreme Court recently ruled on a noncompete matter. Exxon Mobil Corp v. Drennen, No. 12-0621 (Tex. Aug. 29, 2014), available at http://www.supreme.courts.state.tx.us/historical/2014/aug/120621.pdf. Per agreement, an employee’s unvested stock options could be canceled if he worked for a competitor. When he joined a competitor, the employer cancelled his outstanding shares. The employee sued, arguing that the forfeiture provision amounted to a noncompete agreement and was unenforceable as such under Texas law. The employer won at trial, but the court of appeals reversed. It concluded that the forfeiture provision was an unenforceable covenant not to compete and, even though the agreement contained a choice of law provision selecting New York law, Texas law prohibited the enforcement of the provision as a matter of fundamental public policy.
The Texas Supreme Court reversed and ruled that New York law should apply. The court concluded that the forfeiture provision was not a covenant not to compete because it was contained in a non-contributory profit-sharing plan. The plan did not restrict the employee’s right to future employment; instead, it forced the employee to choose between competing and accepting the plan’s benefits. While declining to rule on whether the forfeiture provision was enforceable under Texas law, the court concluded that, even if the application of Texas law might mean a different result, the application of New York law did not offend Texas’s public policy.
This article is presented by the Dallas noncompete lawyers at Clouse Dunn LLP. To speak to an employment lawyer about a noncompete agreement, send an email to debra@clousedunn.com or call (214) 239-2705.
Contact Keith Clouse
KEITH A. CLOUSE
Clouse Dunn LLP
214.220.2722 214.220.3833 ( fax) keith@clousedunn.com
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