Fifth Circuit Court of Appeals Addresses Enforceability of Non-Compete Covenants Under Texas Law
Dallas, Texas (WiredPRNews.com) — The Fifth Circuit Court of Appeals recently upheld a noncompete agreement. Ray Mart Inc. v. Stock Building Supply of Texas LP, No. 07-50609, available at http://www.ca5.uscourts.gov/opinions/unpub/07/07-50609.0.wpd.pdf (5th Cir. Nov. 5, 2008). Stock Building Supply of Texas LP and Weldon Vybiral negotiated an employment agreement which included: a three year term; a statement that Stock could terminate Vybiral for “good cause”; a noncompete covenant; and a nondisclosure of trade secrets covenant. Vybiral left Stock for a competitor, and litigation ensued. Following an adverse ruling, Stock appealed.
Under Texas law, a noncompete covenant is enforceable if: (1) it is ancillary to an otherwise enforceable agreement at the time the agreement is made; and (2) it contains reasonable restraints on the employee’s competitive activity. Here, an otherwise enforceable agreement existed because each party made enforceable promises—in addition to the noncompete provision—which created an employment relationship terminable only for good cause.
For the noncompete provision to be ancillary to this agreement, Stock’s consideration had to give rise to its interest in restraining Vybiral from competing and the covenant had to be designed to enforce Vybiral’s consideration. The Court found that Stock’s promise to employ Vybiral for three years implicitly, but necessarily, involved Stock providing Vybiral with confidential information, giving rise to an interest in protecting this information. Further, the noncompete agreement was clearly designed to enforce Vybiral’s promise of nondisclosure.