Texas Court Weighs in on Assignability of Non-Compete Clause
Mar 3, 2023
Austin, TX (Law Firm Newswire) August 18, 2021 – Non-compete clauses are frequently used—yet often misunderstood—by employers. However, having a non-compete clause does a business no good unless it is enforceable. In a recent case, the Twelfth Court of Appeals was asked to determine the validity of a non-compete agreement. The court concluded that the agreement was not enforceable.
The case involved an employee who began his employment with another company in 2014. However, in 2016, Intertek received that company’s assets. As a part of the transfer agreement., Intertek received all of the other company’s contractual rights.
In March 2019, the employee voluntarily resigned from Intertek and began working for a competitor. Intertek sued the employee, arguing he breached the non-compete clause he previously signed. Initially, the trial court signed a temporary restraining order in Intertek’s favor.
The court then held a hearing to determine whether to issue a temporary injunction. At the hearing, an employee of Intertek testified that the employee never indicated any desire not to be bound by the non-compete clause. However, while he recalled signing the agreement with the previous company, the employee testified that he was unaware that it could be transferred to Intertek. He also explained that he would not have signed such an agreement, as he was not sure he wanted to stay working at Intertek after the merger.
After the hearing, the trial court reversed course, finding that Intertek was not entitled to a temporary injunction. The employee then filed a motion for summary judgment. The question was whether the original company could assign its rights under the non-compete clause to Intertek. The trial court granted the employee’s motion, and Intertek appealed.
The appellate court began by examining the contract, noting that the employee agreed not to compete with the original company for one year. The contract also states that it can only be amended if both sides agree in writing. There was no mention of assignability.
The court explained that the general rule under Texas law is that contracts are freely assignable to other parties. However, the court acknowledged that there is an exception for contracts involving “personal services” that rely on “the parties’ personal trust, confidence, skill, character, or credit.” Relying on previous judicial decisions, the court noted that some non-compete clauses fit within this exception and cannot be assigned unless the employee agrees that the contract is assignable.
Thus, the court had to determine whether the contract at issue was for “personal services.” After evaluating the employee’s role and job duties, the court determined that the contract involved his personal services. Thus, the court affirmed the lower court’s decision to dismiss Intertek’s case.
Austin employment law attorney Gregory D. Jordan explains, “Non-compete clauses are common in all types of employment arrangements. However, there tends to be a lack of knowledge regarding the limitations of a non-compete clause. It is imperative that both employers and employees understand what a non-compete agreement says and when it is enforceable. Otherwise, problems can arise.”
At the Law Offices of Gregory D. Jordan, Attorney Jordan represents both employers and employees in all types of Texas employment lawsuits and arbitration matters. Attorney Jordan has over 30 years of relevant experience assisting businesses and employees in Travis County and throughout Central Texas. Contact the Law Offices of Gregory D. Jordan at http://www.theaustintriallawyer.com/.