Opinion ID: 894789
Heading Depth: 1
Heading Rank: 4

Heading: The Act's Legislative History

Text: Given the indefiniteness of the phrase at the time the agreement is made, we have also examined the legislative history of the Covenants Not to Compete Act. Ordinarily, the truest manifestation of what legislators intended is what lawmakers enacted, the literal text they voted on. This enacted language is what constitutes the law, and when a statute's words are unambiguous and yield a single inescapable interpretation, the judge's inquiry is at an end. See McIntyre v. Ramirez, 109 S.W.3d 741, 745 (Tex.2003). Wherever possible, we construe statutes as written, but where enacted language is nebulous, we may cautiously consult legislative history to help divine legislative intent. [4] See Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 493 (Tex.2001). In the present case, because the modifying clause at the time the agreement is made is imprecise and suggests two conflicting interpretations on the central issue before us, we consult the legislative history to help glean the statute's fair and ordinary meaning. Nothing in the Act's legislative history suggests a reading contrary to the one we adopt today. Indeed, the legislative materials suggest that the current wording of the Act was intended to cover covenants not to compete executed in the course of at-will employment of exactly the sort at issue in the pending case. The Act originated in 1989 with Senate Bill 946. As originally filed, the bill provided: Notwithstanding Section 15.05 of this code, a covenant not to compete is enforceable to the extent that it: (1) is ancillary to an otherwise enforceable agreement; and (2) contains reasonable limitations as to time, geographical area, and scope of activity to be restrained that do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee. Tex. S.B. 946, 71st Leg., R.S. (1989) (original version of bill). Before passage, an amendment was offered and adopted which added language to subsection (1), so that as passed this subsection stated: (1) is ancillary to an otherwise enforceable agreement but, if the covenant not to compete is executed on a date other than the date on which the underlying agreement is executed, such covenant must be supported by independent valuable consideration. Act of May 23, 1989, 71st Leg., R.S., ch. 1193, § 1, 1989 Tex. Gen. Laws 4852. The original and amended language of the 1989 legislation do not suggest that the Legislature intended to exclude unilateral contracts that become enforceable when, as occurred in this case, the employer proceeds to perform his promises to convey confidential information and provide training. The amendment by its terms was intended to cover the situation where the covenant is signed after the original employment agreement but is nonetheless enforceable if supported by new consideration. The Act was passed to expand the enforceability of covenants not to compete. We explained in Light that the Act was a response to decisions from this Court. Light, 883 S.W.2d at 643. A Senate bill analysis noted: Recent Texas Supreme Court Cases, (notably Hill v. Mobile Auto Trim, Inc., 725 S.W.2d 168 (Tex.1987), and DeSantis v. Wackenhut Corp., 31 Tex. Sup.Ct. J. 616 (July 13, 1988)[, on rehearing, 793 S.W.2d 670 (Tex.1990)]) however, have severely restricted the enforceablility of these covenants in franchise and employment settings and raised questions about their use in other previously acceptable circumstances. SEN. RESEARCH COMM., BILL ANALYSIS, Tex. S.B. 946, 71st Leg., R.S. (1989). A House bill analysis stated that Hill overturned long-standing precedent, and that the bill would simply restore over 30 years of common law developed by Texas Courts and remove an impairment to economic development in the state. HOUSE RESEARCH ORG., BILL ANALYSIS, Tex. S.B. 946, 71st Leg., R.S. (1989). See also Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 388 (Tex.1991) (noting that the purpose of the Act was to return Texas' law generally to the common-law as it existed prior to Hill ). The Act was amended in 1993 in response to more court decisions. The legislative history indicates that the primary purposes of the amendment were to make clear that covenants not to compete were applicable to at-will employment situations and that the statute prevailed over contrary common law. A House bill analysis stated: Texas courts have not consistently followed the requirements of Chapter 15. One case has implied that the common law on the subject remains applicable. Another case invalidated covenants not to compete in connection with at will employment contracts. . . . C.S.H.B. 7 clarifies the applicability of Chapter 15 and ensures that at will employment contracts are covered. [5] The bill further makes clear that the statutory requirements prevail over the common law. HOUSE COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. H.B. 7, 73d Leg., C.S. (1993). To that end, section 15.51(b) of the Act was amended to make specific reference to at-will contracts, [6] and section 15.52 was added to provide that the Act preempts common law. TEX. BUS. & COM.CODE §§ 15.51(b), 15.52. The 1993 amendment also rewrote section 15.50 of the Act, the critical provision for our purposes. Prior to the 1993 amendment, section 15.50 provided: Notwithstanding Section 15.05 of this code, a covenant not to compete is enforceable to the extent that it: (1) is ancillary to an otherwise enforceable agreement but, if the covenant not to compete is executed on a date other than the date on which the underlying agreement is executed, such covenant must be supported by independent valuable consideration; and (2) contains reasonable limitations as to time, geographical area, and scope of activity to be restrained that do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee. Act of May 23, 1989, 71st Leg., R.S., ch. 1193, § 1, 1989 Tex. Gen. Laws 4852. The 1993 amendment to this provision was originally introduced in a bill that provided: (a) Notwithstanding Section 15.05 of this code, a covenant not to compete is enforceable to the extent that it: (1) is ancillary to an otherwise valid transaction or relationship but, if the covenant not to compete is executed on a date other than the date on which the transaction occurs or the relationship begins, such covenant must be supported by independent valuable consideration; and (2) contains reasonable limitations as to time, geographical area, and scope of activity to be restrained that do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee. Tex. H.B. 7, 73d Leg., R.S. (1993) (original version of bill). A substituted bill was submitted that became law and provided: (a) Notwithstanding Section 15.05 of this code, a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it 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. Act of May 29, 1993, 73d Leg., ch. 965, § 1, 1993 Tex. Gen. Laws 4201. For the first time, the clause at the time the agreement is made appears in the statute. The reason that the language of section 15.50 was changed in 1993 from otherwise enforceable agreement to otherwise valid transaction or relationship and then back to otherwise enforceable agreement is unclear, but apparently the new reference to at the time the agreement is made simply retained the notion that a covenant not to compete could be signed after the employment relationship began so long as the covenant is supported by new consideration in an enforceable contract. The House bill analysis states that the change describes applicability of the Act in terms of a covenant which is part of an otherwise `enforceable agreement' instead of a `valid transaction or relationship.' The substitute deletes the need for independent consideration. Cumulatively, this legislative history indicates that (1) in 1989 and 1993 the Legislature wanted to expand the enforceability of covenants not to compete beyond that which the courts had allowed, (2) in 1989 the Legislature specifically wanted to ensure that covenants could be signed after the employment relationship began so long as the agreement containing the covenant was supported by new consideration, and (3) in 1993 the Legislature specifically wanted to make clear that covenants not to compete in the at-will employment context were enforceable. As to this last purpose, the 1993 amendment likely deleted the reference in section 15.50 to the date on which the underlying agreement is executed because such a reference might suggest that at-will arrangements are not covered by the statute, as there is no underlying or original executed employment agreement when the employment is at will. As best we can tell, the language in the current version of the Act making reference to the agreement at the time the agreement is made was included in the 1993 amendment to maintain the rule, recognized in the 1989 version of the Act, that a covenant could be signed after the date that employment began so long as the new agreement was supported by independent consideration. This language was not intended to impose a new requirement that the agreement containing the covenant must be enforceable the instant it is made. There is no indication in the legislative history of the 1993 amendment of an intent to reduce the enforceability of covenants not to compete; all of the legislative history is to the contrary. Moreover, the legislative history of the 1993 amendment indicates that one of its purposes was to make clear that at-will employment relationships can be the subject of a covenant not to compete. In this context, we think the typical arrangement would be similar to the covenant in the pending case. The employee had an at-will arrangement, and he signed a covenant not to compete as part of an agreement in which the employer promised to provide confidential information and specialized training and the employee promised not to reveal confidential information. In this typical arrangement, the employer's promise is prospective and becomes enforceable only after the employer provides such confidential information or training and a unilateral contract results. If at the time the agreement is made in section 15.50 means that the agreement must be enforceable the instant it is made, as Light's footnote six requires, then most covenants not to compete executed by employees with at-will employment will be unenforceable. Only the peculiar agreement, such as the one at issue in Light itself, [7] where the employer promises to provide confidential information or training even if the employee has been fired or has quit, would be covered by the Act. Such a reading would take language from the 1993 amendment, intended to expand the reach of the Act to cover at-will employment, and use that language to restrict the reach of the Act in this context.