Fort Worth Business Press. 11/6/2006, Vol. 19 Issue 45, p17-17. 1/2p The article discusses the 2006 ruling regarding the enforcement of a covenant not to compete when employment is at-will. As contrasted to the 1994 Supreme Court ruling, when employment is at-will, the employer's promise had to be fulfilled at the time the agreement was entered while according to the 2006 ruling, the covenant needs to be ancillary to or part of the agreement at the time it is made.

1. NtvambBr 6-12,2006 For! Worth Buslitss Press 17
W E GET
Recent court ruling sheds light on non-compete issues 4 1 MINUTES
The Texas Supreme that, when employment was at-will, the agreement was entered. Alex Sheshunoff
Court has signifi- employer's promise had to be fulfilled Mgt. Svcs. LP V. Kenneth Johnson and A WEEK WITH
cantly changed its at the time the agreement was entered. Strunk & Associates LP S.W.3d
in te rpretation of During the 12 years following 1994, (Tex. 2006). This opinion removes ALL THE
the Covenant Not this timing requirement caused many a major impediment to the enforcement
to Compete Act, courts to find that CNTCs were not of a CNTC when employment is at-will. TOP CEOs...
Tex. Bus. & Comm. enforceable when employment was at-
Code sections wili. Issues likely to arise
15.50ia), et. seq. In The 2006 Sheshunoff opinion
the context of at- decides only the issue of the meaning
witl employment, of "at the time the agreement is made."
Henry H. the employer is no
Robinson Nonetheless, the opinion states, in
longer required to dicta, that, "We also take this opportu-
Guest columnist
fulfill its promise to nity to observe that section 15.5O(a)
provide the employee with considera- does not ground the enforceability of a
tion (e.g., confidential information) at covenant not to compete on the overly
the time the agreement is made. This technical disputes . . . over whether a
removes one major obstacle to the
covenant is ancillary to an otherwise
enforcement of a covenant not to com-
pete (CNTC) when employment is at- enforceable agreement." Despite the
will. dicta, it would be a mistake to infer
Last month, the court reversed the that, in the future, fundamental dis-
1994 ruling and gave a different inter- putes will not arise under this lan-
The change and its significance pretation to the identical statutory lan- guage. First, disputes will continue to
This 2006 change is best appreciated guage. According to the 2006 ruling, the arise over the issue of whether the
when contrasted with earlier statutory language "at the time the agreement is employer has in fact provided the con-
and historical perspectives. Part of sec- made" does not refer to or modify the sideration legally required for a con-
tion 15.50(a) provides that, "a covenant
not to compete is enforceable if it is
immediately preceding phrase "enforce-
able agreement," but rather, to "ancil-
tract. An employer cannot rely on past D o YOU?
lary or part ... " The new opinion states consideration, but rather, must provide
ancillary to or a part of an otherwise "new consideration." The employer
enforceable agreement at the time the that, "the covenant need only be 'ancil-
lary to or part of the agreement at the must provide the consideration before
agreement is made ..." It was previous-
time the agreement is made." the end of the employee's employment.
ly assumed that the phrase "at the time
the agreement is made" referred to or Consequently, provided that the other
modified the immediately preceding
language of "enforceable agreement."
statutory elements are satisfied, a CNTC
is now enforceable if the employer ful-
Henry H. Robinson is a practicing labor and
employment attorney and head ofthe labor and
employment section of Kelly Hart A HaUmiin
Business Press
Thus, the Supreme Court ruled in 1994 fills its promise at any time after the LLP.
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