Non-competes work – they are generally enforceable in Texas and can help protect your business when a valuable employee decides the grass is greener on the other side and joins your largest competitor. However, non-competes must be narrowly-tailored and not “broader than reasonably necessary” to protect your business. What does “reasonably necessary” mean, exactly? Well, one Houston employer recently learned it does not mean prohibiting an employee from working in the entire State of Texas when he only sold products in two cities in Texas.
In Morrell Masonry Supply, Inc. v. Coddou, the Houston Court of Appeals affirmed the ruling in favor of the former employee, Mr. Coddou, and held his non-compete was not enforceable because the statewide restriction in the non-compete far exceeded the only two cities in which Mr. Coddou sold plaster products.
Interestingly, this is a case of competing affidavits. Mr. Coddou, a salesman, filed an affidavit stating that: (1) the company only conducted business in the Houston, Beaumont, and San Antonio areas; (2) that his sales territory only encompassed Houston, Beaumont, and the surrounding areas; and, significantly, that (3) he “was not involved in a single sale that occurred outside of the Houston or Beaumont areas.” On the other hand, the President of the company filed an affidavit stating that his company: (1) conducted significant business throughout the entire State of Texas; and (2) Mr. Coddou “was responsible for sales throughout the State of Texas.” The problem, however, was that the President of the company did not present any evidence to back-up his statements. Without factual support, the President’s statements were deemed conclusory. However, Mr. Coddou’s statements were deemed sufficient to support the geographic scope of his job duties. Therefore, the court held Mr. Coddou’s Texas-wide non-compete was “significantly broader than the geographic scope of [Mr. Coddou’s] actual employment” and was not enforceable as a matter of law. Morrell Masonry Supply, Inc. v. Coddou, Cause No. 01-13-00446-CV, 2014 Tex. App. LEXIS 4730 (Tex. App – Houston [1st Dist.], May 1, 2014).
The take-away is you have to be thoughtful –and overly cautious – about the geographic, scope, or duration restrictions in your non-competes. There has to be some reasonable link in your non-compete to your business and facts to support that link. You can’t include a restriction that prohibits the employee from working in the entire State of Texas or the United States simply because one day you hope to do business throughout the state or country. If you can’t prove that your employees sell or provide services throughout the state or country, then you have just spent a considerable amount of money fighting over a worthless piece of paper.