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What Does “Ancillary To An Otherwise Enforceable Agreement” Mean Under Texas Law? (Part III)

September 24, 2013

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

After Light, the courts struggled with the question of whether the employer had to give the employee the confidential information at the very moment the employee signed the non-compete agreement for the agreement to be enforceable. In 2006, the Texas Supreme Court resolved that question in a pro-enforcement fashion. It held that non-compete covenants can be considered unilateral contracts, made at the time a non-compete is signed, that become binding once an employer provides the employee confidential information. Sheshunoff, 209 S.W.3d at 651. Sheshunoff overruled Light, which had interpreted § 15.50 to require that the non-compete covenant must be supported by a valid promise and actual performance at the very time the agreement is made. Under Sheshunoff, employers may enforce non-compete agreements even if they do not provide the employee with the confidential information until days, weeks, months, or even years after the agreements are executed. If, however, such information is never provided, then the noncompete agreement is not enforceable. See, e.g., Digital Generation, Inc. v. Boring, NO. 3:12-CV-00329-L, 2012 WL 1413386, at *10 (N.D. Tex. Apr. 24, 2012) (finding noncompete unenforceable where employer did not prove that it gave employee confidential information after he signed the noncompetition agreement).

After Sheshunoff, yet another question remained: must the employer’s agreement to provide confidential information to the employee be express, or may it be implied? In 2009, the Texas Supreme Court resolved that question in a pro-enforcement way, and held that such a promise may be express or implied. See Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009). Regarding implied promises, in Mann Frankfort the Court concluded that a non-compete agreement is enforceable even if the employer does not expressly promise to provide the employee with any confidential information in the non-competition agreement, so long as: (a) the employee promises not to disclose or use the employer’s confidential information; and (b) the nature of the contemplated employment will reasonably require the employer to furnish the employee with confidential information. In such an instance, the court held that an employer impliedly promises to provide the employee confidential information. In that case, Mann Frankfort required the defendant to sign an agreement promising not to disclose any confidential information he obtained during his employment. It then provided the defendant access to its client database, containing clients’ names, billing information, and tax and financial information, which constitute confidential information. The court found that Mann Frankfort provided sufficient consideration to support a non-disclosure agreement and, thus, the non-competition agreement was ancillary to or part of an otherwise enforceable agreement under the typical “employer promises to give employee confidential information or trade secrets and in return employee promises not to disclose such information” analysis set out in footnote 14 of Light. See Light, 883 S.W.2d at 647 fn. 14. Since Mann Frankfort has been decided, several courts have enforced non-competition agreements, applying its holding that even an employer’s implied agreement to provide an employee with trade secrets or confidential information can support a non-competition agreement. See, e.g., Gallagher Healthcare Ins. Services, 312 S.W.3d at 650-51 (decision enforcing non-compete agreement under Mann Frankfort standard); York v. Hair Club for Men, L.L.C., No. 01-09-00024-CV, 2009 WL 1840813 (Tex. App.–Houston [1st Dist.] June 25, 2009, no pet.) (unpublished) (same).

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