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Over the course of the last few months we have seen several matters referred to us involving non-competition, non-solicitation and non-disclosure agreements. In these cases, former employers were suing or threatening to sue former employees. Generally these matters were resolved by negotiation. One matter went to court but ultimately settled during an evidentiary hearing. An unreported Corpus Christi Court of Appeals opinion in Shoreline Gas Inc. v. McGaughey contains some interesting and informative observations related to the trial and appeal of these types of cases.
The McGaughey case involved a natural gas marketer and its former employee, McGaughey, who was hired by the employer in 2002 to call on gas producers and negotiate contracts. McGaughey was "at-will" when hired and signed Non-Competition, Non-Solicitation and Non-Disclosure Agreements upon hire. In April 2007, McGaughey was terminated and proceeded to work in the same field, which his former employer did not appreciate and sued.
The trial court refused to grant a temporary injunction despite finding that the non-competition agreement was valid. The Corpus Christi Court of Appeals refused to reverse the trial court. That court found specifically that "confidential information" included margin and pricing information as well as notes compiled by other employees and certain supplier histories that were not publicly available. The court concluded, however, that the employer failed to establish "irreparable injury" sufficient to justify injunctive relief.
The court stated that the "mere fear or apprehension of the possibility of injury" was insufficient to support injunctive relief. The non-competition agreement specified, as many of these agreements do, that monetary damages would be insufficient to compensate for any breach or violation of the non-competition agreement's provisions. The court observed that no Texas case has held that such a provision established that injunctive relief was rendered available by such a clause.
The employer produced no evidence that McGaughey had actually breached or violated any covenant or undertaking contained in the agreement, or had even threatened to breach or violate the agreement. Representatives of the employer testified that McGaughey "would be free to violate the entire agreement and take all of the business away from us that we spent so many years to develop by undercutting our pricing and taking advantage of the relationships that have been developed over the years. And I think that there will be some lost jobs." The employer's representative also testified that the employer would be damaged because "...[w]e'd have to prove the damages and then recover the damages."
The court found this testimony insufficient to support injunctive relief. The court also concluded that the non-solicitation agreement was analogous to a covenant not to compete and that provisions of the Covenant Not to Compete Act would apply to the non-solicitation agreement.
This case is a good example of the analysis courts may use with respect to many of the common questions that arise when an employee leaves the job and there is concern about potential lost business but no actual proof that any business has been taken away.
Thoughts on Non-Competition, Non-Solicitation and Non-Disclosure Agreements (Stephen N. Wakefield, Employment Newsletter, February 2010)
March 23, 2010Over the course of the last few months we have seen several matters referred to us involving non-competition, non-solicitation and non-disclosure agreements. In these cases, former employers were suing or threatening to sue former employees. Generally these matters were resolved by negotiation. One matter went to court but ultimately settled during an evidentiary hearing. An unreported Corpus Christi Court of Appeals opinion in Shoreline Gas Inc. v. McGaughey contains some interesting and informative observations related to the trial and appeal of these types of cases.
The McGaughey case involved a natural gas marketer and its former employee, McGaughey, who was hired by the employer in 2002 to call on gas producers and negotiate contracts. McGaughey was "at-will" when hired and signed Non-Competition, Non-Solicitation and Non-Disclosure Agreements upon hire. In April 2007, McGaughey was terminated and proceeded to work in the same field, which his former employer did not appreciate and sued.
The trial court refused to grant a temporary injunction despite finding that the non-competition agreement was valid. The Corpus Christi Court of Appeals refused to reverse the trial court. That court found specifically that "confidential information" included margin and pricing information as well as notes compiled by other employees and certain supplier histories that were not publicly available. The court concluded, however, that the employer failed to establish "irreparable injury" sufficient to justify injunctive relief.
The court stated that the "mere fear or apprehension of the possibility of injury" was insufficient to support injunctive relief. The non-competition agreement specified, as many of these agreements do, that monetary damages would be insufficient to compensate for any breach or violation of the non-competition agreement's provisions. The court observed that no Texas case has held that such a provision established that injunctive relief was rendered available by such a clause.
The employer produced no evidence that McGaughey had actually breached or violated any covenant or undertaking contained in the agreement, or had even threatened to breach or violate the agreement. Representatives of the employer testified that McGaughey "would be free to violate the entire agreement and take all of the business away from us that we spent so many years to develop by undercutting our pricing and taking advantage of the relationships that have been developed over the years. And I think that there will be some lost jobs." The employer's representative also testified that the employer would be damaged because "...[w]e'd have to prove the damages and then recover the damages."
The court found this testimony insufficient to support injunctive relief. The court also concluded that the non-solicitation agreement was analogous to a covenant not to compete and that provisions of the Covenant Not to Compete Act would apply to the non-solicitation agreement.
This case is a good example of the analysis courts may use with respect to many of the common questions that arise when an employee leaves the job and there is concern about potential lost business but no actual proof that any business has been taken away.