EMPLOYEE’S EXPOSURE TO SOFTWARE, CLIENTS, PRICING, AND TRAINING COULD MAKE NON-COMPETE VALID
Aug. 19, 2014
On June 26, the Fourteenth Court of Appeals issued a ruling enforcing a non-compete agreement between a court reporting services company and its former employee, Martha Rodriguez. Rodriguez worked for Republic Services, Inc. for six years as a “Manager/Marketing Director” before she quit. During this time she assigned and scheduled outside court reporters and videographers to serve Republic’s clients. She was trained to use the Company’s Court scheduling software for creating schedules and sending invoices. At the beginning of her employment, she signed a non-compete agreement. After she quit her job at Republic, she started working for Cornerstone. At Cornerstone, she called customers, scheduled court reporters and videographers, and interpreted for Cornerstone’s customers. There was contradicting evidence presented to the court as to whether Cornerstone had the infrastructure for its court reporting operations prior to Rodriguez’s employment. When Rodriguez started working for Cornerstone, Republic filed suit against both her and Cornerstone for breach of employment agreement, tortious interference, and civil conspiracy.
The trial court gave the employee a victory and the employer appealed. The Court of Appeals reversed the trial court’s decision. The court cited to the Texas Business and Commerce Code, instructing that a covenant not to compete is enforceable if it is (1) “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made,” and (2) “contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”
In regards to the first requirement, the court held the contract to be enforceable, finding that there was consideration because Rodriguez received training, customer information, and pricing information. The employer used evidence that Rodriguez was aware of pricing information and that she scheduled lunches with contacts who could bring the company business. Rodriguez attempted to argue that most of the information she used was obtained from public sources, but the Court stated that even publicly available confidential information can serve as consideration for a non-compete.
Addressing the second requirement, the Court reaffirmed its prior precedent that broad industry-wide non-compete exclusions are invalid, but held that the employee, in this case, did not prove that her covenant was an industry-wide non-compete that was invalid.
The lesson from this case is employees who have some exposure to pricing information, clients, or both, could be reasonably subject to a non-compete, even if the information they use is publicly available. Both employers and employees should take note and seek legal advice to protect their legal interests.