Noncompetes in Texas: Can Money Alone Serve as Consideration for an Enforceable Noncompete

My good friend Mike Maslanka has an excellent post up on his Work Matters Blog this week discussing the Texas Supreme Court’s granting review of  Marsh USA Inc, et al. v. Cook.  At issue is whether an employer can use cash or some other cash-like compensation (here it was stock options) as the sole consideration to support a noncompete agreement.

The answer under current law is pretty clearly no it can’t – this is what was held by the court of appeals that held in favor of the employee in this case.  You can view that opinion here.

Currently in Texas, an employer must, as consideration for a noncompete agreement, give the employee some type of private proprietary information or trade secret.  Thus the need for the noncompete is seen as tied to the need for the employee to have access to proprietary information.

The Marsh case represents a full-on frontal assault on this principal.  Here is how Mike puts it:

The stakes are high. Cook’s reply to Marsh’s petition hits the nail squarely on the head: Marsh’s “argument would allow an employer to impose on an employee a covenant not to compete in exchange for any benefit the employer provides to incentivize the employee to work hard and build the company.” Marsh similarly homes in on the key issues, asserting the 5th Court’s opinion “creates an environment hostile to economic development” and warning in its petition that “Employers like Marsh, whose goodwill exists in the form of customer relationships, may have to consider relocating to states that clearly and consistently protect goodwill.”

The stakes for this case are indeed very high.  Should the Court rule in favor of the employer, then virtually any employee in Texas could soon find themselves being asked to sign over their right to continue working in the same town or area of business in exchange for (as Al Pacino put it in Oceans 13) “a modest cash payment.”