Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Langley Weinstein LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

Analysis from last Friday’s Texas Supreme Court opinion in Marsh USA v. Cook will continue this week as lawyers, employers, and employees struggle with what the non-compete playing field is today. Quite simply put, Marsh USA is a game changer.

The ramifications of the case are best set forth Justice Green’s dissent, which was joined by Chief Justice Jefferson and Justice Lehrmann.  Some highlights from his opinion:

The Court today abandons our previous application of the “ancillary to or part of” requirement codified in Texas Business and Commerce Code § 15.50(a) and instead defines the phrase as “reasonably related to.”  Under the Court’s reasoning, a raise, a bonus, or even a salary could support an enforceable covenant.  The true issue is that Texas courts have stated time and again that an employer cannot buy a covenant not to compete, and the Court’s decision allows Marsh and other employers to do exactly that.

Justice Green hits the nail squarely on the head. The effect of the Court’s ruling is to abandon the “ancillary to an otherwise enforceable agreement” standard in favor of what appears to be a reasonably related standard. Granted, the ancillary to language is confusing and the reasonably related standard is what numerous other states have adopted. The problem for the Court is that the Texas legislature drafted the non-compete statute and included the ancillary to language.  We will have two wait until 2013 to see if the Texas legislature will react to the ruling.  Of course time will tell what the effect of the opinion will be as lower appellate courts address the standard.

In our next entry we’ll address the practical effect of the ruling on employer and employees, but for now we’ll give Justice Green the last word:

Allowing employers to obtain covenants not to compete by providing such financial incentives without actually giving the employee anything that gives rise to an interest in restraining trade is bad policy for Texas, and will make covenants not to compete much more commonplace in instances where there is little risk of unfair competition.

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Today the Texas Supreme Court again made non-compete agreements easier to enforce in the state of Texas.  In Marsh USA v. Cook, the Texas Supreme Court ruled that a stock option agreement could serve as the basis for a non-compete:

The stock options are reasonably related to the protection of this business goodwill. Thus, this covenant not to compete is ancillary to an otherwise enforceable agreement.  And, in the Legislature’s apparent judgment, reasonable noncompetes encourage greater investment in the development of goodwill and employee training.

More details to follow and analysis of the case.  The questions now becomes can other forms of consideration form the basis for non-competes, like a signing bonus?  We previously considered this issue, but the answer seems to be yes.  The bottom line is that the Texas Supreme Court continues to make non-competes easier to enforce in a trilogy of opinions culminating in Marsh. 

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In a recent article about employee poaching Mark Hendricks profiled the common practice of poaching a competitor's talent.  In the article he noted:

1. Employers like to hire people who are employed, not unemployed; 
2. Reaching potential hires through social networking tools like LinkedIn has made poaching easier; and
3. Potential employers need to worry about non-solicitation agreements, non-compete agreements and other confidentiality provisions a poached employee may have signed. 

My thoughts:

1. Do your due diligence in determining what post-employment covenants a potential hire may have -this may impact whether you want to make the hire;
2. Make the employee certify in writing that there are no post-employment covenants that would affect their future employment;
3. Make it clear that if the case turns out that there are post-employment covenants, the employer may terminate the employee and not necessarily defend them in any type of lawsuit;
4. Make  new employees certify that they have not taken any confidential or proprietary information that belongs to their former employer; and
5. Remember – what goes around, comes around.

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Last year FINRA published its social media guidelines as contained in Regulatory Notice 10-06.  As discussed previously, broker/dealers are subject to very onerous restrictions when it comes to social media communications.  The restrictions are so burdensome it is questionable why a financial advisor would use social media for business purposes beyond general networking.

Morgan Stanley's social media gameplan was profiled in a recent CNBC story.  Brokers will be permitted to use pre-approved messages on Twitter and LinkedIn.  Though some commentators are critical of this type of static and pre-approved communications, large wirehouses simply can't allow representatives to engage in ad hoc product endorsement or discussions.  Such an approach will likely run afoul of FINRA regulations and subject the company to unnecessary exposure.

So, Morgan Stanley will enter the social media fray slowly and others are sure to follow.  The bottom line is financial advisors cannot ignore the popularity of social media sites and opportunities to communicate with prospective and ongoing clients.  Easier said then done in this highly regulated industry.

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Last week we discussed the firing of Paul Tueutul, Jr., and ongoing business divorce at Orange County Choppers.  This dispute between Jr. and his father, Paul Tueutul, Sr., has many of the issues that arise in a business divorce, as well as the complexity and dynamics that business divorce can take when two principals are family members. 

Below are a few tips we have collected from people involved in business relationships with family members:

1. Treat everyone as business partners -- strive to keep family issues outside the office;
2.  Learn to listen to everyone's ideas -- they may be better than yours -- if you can't, you should  not be together;
3. Never let money become an issue;
4. Don't let non participating spouse's views get into the mix
5. Treat everyone with respect -- if you can't, you will fail;
6. Everyone has to know their role prior day;
7. Everyone has to be flexible;
8. Egos have to be put in check;
9. Communication is key; and
10. Older guy has to recognize that the younger guy can’t help but be stupid from time to time.
     

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 Rep. Weiner decided to come clean and admit the Tweet and attached picture he sent to a woman was sent by him and of him. According to CNN, Weiner's communications were not limited to one woman and took place with several over the last three years.  I'll spare you the salacious details and pose the following question:  If Weiner worked for you what would you do?

One of the issues that jumps out is whether Weiner improperly used government resources for his communications.  He addressed this during his news conference yesterday and indicated he owns his Blackberry and that:

I don't believe that I used any government resources

If his communications are as prevalent as believed there will be additional disclosures about who was paying for his Blackberry services and whether his social media communications were conducted on platforms other than his Blackberry - i.e. a government computer.

In review of Weiner's actions, his employer should probably be asking the following questions:

1. Did Weiner improperly use company resources and time to conduct these communications?
2. If so, is there a company policy against use of company resources for this type of conduct?
3. Assuming there is a company social media policy in place, did Weiner violate it?
4. Did his conduct violate some other type of company policy?
5. Forget policies for a second, is what he did a fireable offense?

An employer would hope that a senior employee, like a Congressman, would be smart enough to avoid this type of conduct but this is wishful thinking.  As a result, it is up to the employer to have in place policies that address this type of conduct and provide the basis to either terminate Weiner or reprimand him. 

One thing for sure is we have not heard the last of this story.  It will be interesting to see if he goes the route of the sexual addiction defense - how should the employer handle that claim?

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If you ever had the chance to watch American Chopper you are familiar with the tension between Paul Teutul Sr. and Paul Teutul Jr.  Unfortunately, that tension led to departure of Jr. from Orange County Chopper and of course lawsuits.  (Peter Mahler provides an excellent recap of the litigation in his New York Business Business Divorce Blog.) 

I hadn't watched the show in a few years but my brother got me up to speed over the weekend. The short of it is Jr. owned 20% of OCC but Sr. was entitled to buyout Jr.'s position if he left.  The litigation centered on whether they had actually agreed to a buyout provision and of course, what the value of the company was.  It appears, though it is a little unclear, that the case has settled.

The good news for the Discovery Channel is the dispute has been good for ratings.  This season has been styled "Senior versus Junior" and the show covers the ongoings at OCC and Jr.'s new shop, Paul Jr. Designs. 

The bad news is business breakups that involves families have ramifications beyond business and impact the entire family.  With any business that involves multiple owners, there needs to be a clearly defined and thought out exit strategy for a departing owner.  There are very smart people and lawyers who have drafted what they thought was a comprehensive buy out provision of a departing owner or shareholder that either didn't work or was declared unenforceable by a Court. 

Careful attention to buyout provisions and other governance issues needs to be paid at the outset of the business.  At that juncture, no one is really considering a nightmare business break up scenario, especially between a father and son, but they can and do happen. 

Though Sr. and Jr. probably shouldn't be in business together, hopefully they can resolve their differences.  A little video insight into their relationship is below:

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