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Tuesday, October 24, 2006

Texas Supreme Court on Consideration and Covenants Not to Compete

This from Workplace Prof Blog:

The Texas Supreme Court last week changed its law about when such noncompetition agreements are supported by adequate consideration.  In Sheshunoff Management Services, Inc. v. Kenneth Johnson and Strunk & Associates, No. 03-1050 (Tx. Oct. 20, 2006), the court found that a unilateral promise by the employer may support a covenant not to compete.  More specifically, the court held:

In this case we revisit the Court’s 1994 decision in Light v. Centel Cellular Co. and again consider the enforceability of covenants not to compete in the context of at-will employment. The question today is whether an at-will employee who signs a non-compete covenant is bound by that agreement if, at the time the agreement is made, the employer has no corresponding enforceable obligation. Under Light, the answer to that question was always “no.” Today we modify our holding in Light and hold that an at-will employee’s non-compete covenant becomes enforceable when the employer performs the promises it made in exchange for the covenant. In so holding, we disagree with language in Light stating that the Covenants Not to Compete Act requires the agreement containing the covenant to be enforceable the instant the agreement is made.

[Meredith R. Miller]

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