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.