Opinion ID: 894789
Heading Depth: 1
Heading Rank: 5

Heading: The Act Applies to Unilateral Contracts

Text: For these reasons, we hold that a covenant not to compete is not unenforceable under the Covenants Not to Compete Act solely because the employer's promise is executory when made. If the agreement becomes enforceable after the agreement is made because the employer performs his promise under the agreement and a unilateral contract is formed, the covenant is enforceable if all other requirements under the Act are met. In the pending case, these other requirements were met and, by the time Johnson left ASM, the agreement had become an enforceable unilateral contract because ASM had provided confidential information and specialized training as promised to Johnson, and Johnson had promised in return to preserve the confidences of his employer. We also take this opportunity to observe that section 15.50(a) does not ground the enforceability of a covenant not to compete on the overly technical disputes that our opinion in Light seems to have engendered over whether a covenant is ancillary to an otherwise enforceable agreement. Rather, the statute's core inquiry is whether the covenant contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee. TEX. BUS. & COM.CODE § 15.50(a). Concerns that have driven disputes over whether a covenant is ancillary to an otherwise enforceable agreement such as the amount of information an employee has received, its importance, its true degree of confidentiality, and the time period over which it is receivedare better addressed in determining whether and to what extent a restraint on competition is justified. [8] We did not intend in Light to divert attention from the central focus of section 15.50(a). To the extent our opinion caused such a diversion, we correct it today.
Johnson and Strunk also contended in their motions for summary judgment, as they do here, that the covenant not to compete was unreasonable. The court of appeals did not reach this issue. The covenant in the parties' employment agreement provided in pertinent part: (a) In consideration of the training and access to Confidential Information provided by Employer, and so as to enforce Employee's agreement regarding such Confidential Information . . ., Employee agrees that while employed by Employer, and for a period of one (1) year following the termination of Employee's employment for any reason, Employee will not (i) directly or indirectly, as an owner, employee, independent contractor or otherwise, provide consulting services to banks, savings and loans or other financial institutions where the Employee has provided fee based services in excess of 40 hours within the last year of employment, or with which Employee has conducted significant sales activity, including, but not limited to, more than one sales call, preparation of a sales proposal and actual sales, within the last year of employment. This restriction applies regardless of geographic location, it being acknowledged by the parties that Employer's clients are not confined to a particular geographic area; (ii) solicit or aid any other party in soliciting any affiliation member or previously identified prospective client or affiliation member; or (iii) solicit or aid any other party in soliciting for employment any then-current employee of Employer. (b) Employee understands and acknowledges that Employer has made substantial investments to develop its business interests and goodwill, and to provide special training to Employee for the performance of Employee's duties under this Agreement. Employee agrees that the limitations as to time, geographical area, and scope of activity to be restrained contained in this Paragraph 6 are reasonable and are not greater than necessary to protect the goodwill or other business interests of Employer. Employee further agrees that such investments are worthy of protection, and that Employer's need for the protection afforded by this Paragraph 6 is greater than any hardship Employee might experience by complying with its terms. Johnson argues that the covenant is overbroad because:  its restriction on his solicitation of certain of ASM's prospective clients and affiliation members is unrelated to any training or confidential information ASM provided Johnson after he signed the employment agreement;  ASM's protection of its goodwill is unrelated to any such information;  there is no basis for restricting Johnson from calling on ASM's clients of whom he was aware before signing the employment agreement. We disagree. With Johnson's help, as Director of Affiliation, ASM continued to develop clients for four years after the employment agreement was signed. Johnson helped develop ASM's goodwill and could have tried to capitalize on it unfairly after going to Strunk. Johnson was even privy to ASM's development of a product to compete with Strunk. Although ASM had given Johnson access to the same marketing information without a covenant not to compete, nothing precluded ASM from seeking the greater protection of a covenant when it did. The summary judgment record shows that Johnson's covenant would have precluded him from calling on 821 ASM clients for one year. When Johnson began work with Strunk, he agreed he would not sell an overdraft protection product, not just to Strunk's customers, but to anyone in the industry, and not for one year, but for two years after leaving Strunk's employment. Johnson testified that his covenant with Strunk was reasonable, just as he admitted in his employment agreement that his covenant with ASM was reasonable. We conclude that Johnson's covenant with ASM was reasonable under section 15.50(a). Johnson and Strunk were therefore not entitled to summary judgment on their contrary argument. Since the covenant was enforceable, Johnson and Strunk were not entitled to recover attorney fees. ASM did not move for summary judgment on the enforceability of Johnson's covenant; thus, the case must be remanded to the trial court. Obviously, the one-year period during which Johnson's activities were to be restricted has passed, and ASM is no longer entitled to the injunctive relief it sought, and for a while obtained, at the outset. But ASM's claim for damages for breach of the covenant remains pending.