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Texas: Noncompete Agreement Imposed Reasonable Restraints

By Susan R. Heylman  7/28/2014
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A former employee of a court reporting company and her new employer—sued by the former employer for breach of the employee’s noncompetition agreement—were not entitled to summary judgment because they had not proved that the noncompetition covenant was not ancillary to or part of an otherwise enforceable agreement and that all restraints in the agreement were unreasonable, a Texas appellate court ruled.

The former employee, Martha Rodriguez, worked for Republic Services for nearly six years, assigning and scheduling court reporters and videographers for Republic’s clients. Her employment agreement included noncompetition, nonsolicitation, and nondisclosure clauses covering a 12-month period after her termination of employment.

After Rodriguez quit her job with Republic, she was hired by Cornerstone Reporting to a job scheduling court reporters, videographers and interpreters. Republic filed suit against Rodriguez and Cornerstone, alleging that Rodriguez breached the noncompetition clause by taking a job with a competitor company, contacting Republic’s customers and seeking to poach business. The trial court ruled that the noncompetition clause was unenforceable because it contained an unreasonable industry-wide exclusion that imposed greater restraints than necessary to protect Republic’s business interests.

The appeals court reversed. The court explained that, under Texas code, a covenant not to compete was enforceable if it: 1) was ancillary to or part of an otherwise enforceable agreement at the time the agreement was made; and 2) contained limitations as to the time, geographical area, and scope of activity to be restrained that were reasonable and did not impose a greater restraint than was necessary to protect the goodwill or other business interest of the company.

As to the first requirement of enforceability, Rodriguez and Cornerstone had argued that Republic had failed to provide adequate consideration to make the noncompetition covenant enforceable. Rather, the court said, Republic had evidence of adequate consideration, including its business goodwill, customer order history, and the employee’s software training. It also cited the evidence that Rodriguez, at the direction of her boss at Republic, had invited contacts who had authority to schedule court reporters at their firms to lunches paid for by Republic and that at least one of these contacts chose to schedule court reporters through Cornerstone upon learning that she had changed employers.

Consequently, the court said, Rodriguez and Cornerstone had not shown the agreement was not otherwise enforceable.

Addressing the second requirement—the reasonableness of the agreement’s restraint—the court noted that Rodriguez and Cornerstone had argued that the covenant imposed an industry-wide exclusion for subsequent employment with any company that could be seen as a competitor of Republic. However, they had provided no evidence of the industry at issue. By contrast, the court said, Republic’s evidence showed specific companies in their county that were not competitors within the legal support services industry. 

The court remanded the case for further proceedings.

Republic Services Inc. v. Rodriguez, Texas App., No. 14-12-01054-CV (June 26, 2014).

Susan R. Heylman, J.D., is a freelance legal writer and editor based in the Washington, D.C., area.

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