A post-employment non-compete covenant is an agreement by an employee that, after termination of employment he or she will not compete with his or her former employer-usually within a specified geographic area and for a specified period of time. Such covenants are standard parts of many employment contracts.
Under the long standing common law of contracts, non-compete covenants are generally suspect as restraints of trade. Post-employment non-compete covenants also bear a strong presumption of unfairness because of the superior bargaining power almost invariably wielded by the employer. Nevertheless most jurisdictions, including Texas, have traditionally enforced post-employment non-compete covenants within the constraints of the reasonableness test described below.
Recently, however, courts in several jurisdictions have begun to view non-compete covenants with increasing disfavor. Indeed, the opinions in two recent cases decided by the Supreme Court of Texas cast serious doubt upon the continuing viability of such covenants in Texas. Unfortunately, both opinions are flawed in their reasoning and confused in their application of the law. Therefore, their predictive value is unclear.
The purpose of this article is to (1) identify the policy issues and conflicting interests; (2) describe the common law rules generally applied in most U.S. jurisdictions and examples of some statutory efforts to resolve the dilemma; (3) describe and critique the relevant Texas law as it existed prior to the two most recent cases; and (4) discuss these cases against the above-described background.
14 Thurgood Marshall L. Rev. 1 (1988)