Court Opinion

ID: 9769724
Source: CourtListenerOpinion
Date Created: 2023-08-29 15:00:02.342757+00
Date Added: 2024-06-11T15:44:45.277380
License: Public Domain

MOSELEY, Justice,
concurring.
The majority holds that the covenant not to compete before us is unenforceable under Texas law,1 as analyzed by the Texas Supreme Court in Light v. Centel Cellular Co.2 As I can find no way to distinguish Light from this case, I concur with the majority. However, I write separately because Light effectively nullifies a portion of the statutory language governing noncompete agreements. Under a proper reading of that statute, I would decide this case differently.

Background

Prior to 1989, covenants not to compete were governed solely by common law. In response to decisions issued by the Texas Supreme Court, in 1989, the Texas legislature passed the original Covenants Not To Compete Act (“the Act”).3 The Act added section 15.50 to the business and commerce code, which 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.4
Subsequent supreme court cases minimized the effects of the Act. For instance, without deciding whether the Act applied retroactively to covenants entered into before its effective date, in DeSantis v. Wackenhut Corp.5 and Martin v. Credit Protection Ass’n,6 the court concluded in each case that the covenant in question was invalid under common law and stated that application of the Act would not change the outcome of the case.7 Additionally, the court’s later opinion in Travel Masters, Inc. v. Star Tours, Inc. was decided solely on the basis of DeSantis and Martin, without reference to the Act.8
Furthermore, these cases determined whether noncompete agreements were enforceable using criteria that differed from the Act. In DeSantis, for example, the court employed the following three-part test to determine the reasonableness of a covenant not to compete:
1. The agreement not to compete must be ancillary to an otherwise valid transaction or relationship.
2. The restraint created by the agreement not to compete must not be greater than necessary to protect the promisee’s legitimate interest.
3. The promisee’s need for the protection afforded by the agreement not to compete must not be outweighed by either *756the hardship to the promisor or any injury to the public.9
In Martin, the court stated that “[a]n enforceable covenant not to compete must be ancillary to an otherwise valid contract luhose primary purpose is unrelated to the suppression of competition between the parties."10
In 1993, after the Texas Supreme Court decided DeSantis, Martin, and Travel Masters, the legislature again amended the business and commerce code.11 The legislature expressly stated that section 15.50 preempts common law and contains the exclusive criteria for determining the enforceability of a covenant not to compete.12 The legislature also revised section 15.50 of the Texas Business and Commerce Code to state that
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.13

Light v. Centel Cellular Co.

Light was the first case involving the interpretation of the 1993 amendments to come before the Texas Supreme Court following their passage. Light acknowledged the legislature’s intent to preempt common law concerning covenants not to compete.14 However, the court stated that the legislature did not provide any standards for assessing whether or not such a covenant is ancillary to or part of an otherwise enforceable agreement.15 To fashion such a standard, Light looked to Justice Stevens’s dissent in Business Electronics v. Sharp Electronics, which argued that a restraint is not ancillary to a contract unless it is designed to enforce a contractual obligation of the parties.16 Light determined that this “designed-to-enforce-a-contraetual-obligation standard for assessing whether a covenant is ancillary to an otherwise enforceable agreement” was consistent with the Texas Supreme Court’s pre-amendment (e.g., common law) holdings regarding the permissible scope of a valid restraint of trade, citing DeSantis.17
Therefore, Light fashioned a new test based on the dissent in Business Electronics, which echoed the “interest worthy of protection” standard from DeSantis18:
[I]n order for a covenant not to compete to be ancillary to an otherwise enforceable agreement between employer and employee:
(1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer’s interest in restraining the employee from competing; and
(2) the covenant must be designed to enforce the employee’s consideration or return promise in the otherwise enforceable agreement.19
Note, this test only addresses whether a covenant not to compete is ancillary to an otherwise enforceable agreement-not whether a covenant is part of an otherwise enforceable agreement. Nevertheless, immediately after setting forth this test, Light stated: “Unless both elements of the test are satisfied, the covenant cannot be ancillary to or part of an otherwise enforceable agreement.”20 Light thus lumped together the two alternative elements found in section *75715.50 of the business and commerce code, effectively rendering the “or part of’ phrase in the 1993 amendments a nullity.

Analysis

We presume that every word in the statute possesses a significant purpose and meaning.21 In other words, the legislature presumptively had a purpose when it included both the phrases “ancillary to” and “or part of’ in the statute. Because the legislature did not define these phrases, we consider their ordinary meaning.22 “Ancillary to” and “part of’ do not have the same ordinary meaning. “Ancillary” means “subordinate or auxiliary to a primary or principal legal document.” 23 A “part” is “an essential portion or integral element of something.”24 Even Light recognized that the term “part” in the statute literally means “in the same instrument.” 25 Utilizing these meanings, the first requirement for an enforceable covenant not to compete under section 15.50 is that the covenant must be either (a) subordinate or auxiliary to an otherwise enforceable agreement at the time the agreement was made, or (b) in the same instrument as an otherwise enforceable agreement at the time the agreement was made.
Light stated that it “interpret[s] the phrase ‘or part of to mean more than merely in the same instrument because such a literal reading renders the phrase ‘at the time the agreement is made’ redundant.”26 As noted above, I agree with Light that the literal meaning of the phrase “or part of’ means “in the same instrument.” I disagree, however, that using such a literal reading creates a redundancy. By requiring a noncompete agreement to be ancillary to or part of an otherwise enforceable agreement “at the time the agreement is made,” the legislature merely recognized that agreements are often amended or supplemented, and expressed a legislative intent that such amendments or supplements cannot “tack on” a noncompete provision to a previously existing, enforceable agreement. Such an intent is also consistent with the intent of the 1989 Act, which required separate consideration to support a noncompete agreement if it was executed on a day other than the date of the underlying agreement.27 Considering the 1993 amendments in this light, neither the phrase “or part of’ nor the phrase “at the time the agreement is made” is redundant. Consequently, there is no need to interpret the phrase “or part of’ to mean something different than its literal meaning-“in the same instrument.”
I believe a proper application of the “or part of’ language from section 15.50, as outlined above, would change the outcome of this case. Here, the covenant not to compete was in the employment agreement that Donahue signed. It was not added later by amendment or supplement. Second, the employment agreement contains other enforceable provisions. Because appellants have not challenged the reasonableness of the covenant’s restrictions as to time, geographical area, and scope, that issue is not preserved for our review. Therefore, I would hold that the covenant not to compete is enforceable under section 15.50 of the business and commerce code.
However, I can see no principled way to distinguish this case from Light. Until the supreme court again addresses the statutory *758language, I believe we are bound by Light; I therefore concur with the majority.

. See Tex Bus. & Com.Code Ann. § 15.50 (Vernon Supp.1997).

. 883 S.W.2d 642 (Tex.1994).

. See id. at 643 n. 2; Richard L. Armstrong, The Changing Face of Noncompetition and Nondisclosure Covenants, 57 Tex. B.J. 962, 964 (1994).

. Act of May 23, 1989, 71st Leg., R.S., ch. 1193, § 1, 1989 Tex. Gen. Laws 4852, 4852, amended hy Act of May 29, 1993, 73d Leg., R.S., ch. 965, § 2, 1993 Tex. Gen. Laws 4201, 4201 (current version at Tex. Bus. & Com.Code Ann. § 15.05 (Vernon 1987 & Supp.1997)) (emphasis added).

. 793 S.W.2d 670, 681-84 (Tex.1990).

. 793 S.W.2d 667, 669 (Tex.1990).

. DeSantis, 793 S.W.2d at 684-85; Martin, 793 S.W.2d at 669 n. 1.

. 827 S.W.2d 830, 832-33 (Tex.1991).

. DeSantis, 793 S.W.2d at 681-82.

. Martin, 793 S.W.2d at 669 (emphasis added).

. See Tex. Bus & Com Code Ann. §§ 15.50-52 (Vernon Supp.1997).

. Id. § 15.52.

. Id. § 15.50 (emphasis added).

. Light, 883 S.W.2d at 647.

. Id.

. 485 U.S. 717, 739-41, 744-46, 108 S.Ct. 1515, 1527-28, 1530-31, 99 L.Ed.2d 808 (1988) (Stevens, J., dissenting).

. Light, 883 S.W.2d at 647.

. DeSantis, 793 S.W.2d at 682.

. Light, 883 S.W.2d at 647 (emphasis added).

.Id.

. State v. Flag-Redfern Oil Co., 852 S.W.2d 480, 487 (Tex.1993) (Gonzalez, J., concurring); Cameron v. Tenell & Garrett, Inc., 618 S.W.2d 535, 540 (Tex. 1981); see Tex. Gov't Code Ann. § 311.021(2) (Vernon 1988).

. Hopkins v. Spring Ind. Sch. Dist., 736 S.W.2d 617, 619 (Tex.1987); see Tex. Gov’t Code Ann. § 311.011(a) (Vernon 1988).

. Webster’s Third New International Dictionary 80 (3d ed.1981); see Black’s Law Dictionary 85 (6th ed.1990) ("auxiliary or subordinate”).

. Webster’s Third New International Dictionary 1645 (3d ed.1981); see Black’s Law Dictionary 1117 (6th ed. 1990) (“An integral portion, something belonging to a larger whole; that which together with another or others makes up a whole.”).

. Light, 883 S.W.2d at 647 n. 12.

. Id.

. See Act of May 23, 1989, 71st Leg., R.S., ch. 1193, § 1, 1989 Tex. Gen. Laws 4852, 4852 (amended 1993).