New Texas Non-Compete Decision

On April 17, the Texas Supreme Court delivered another opinion on its interpretation and enforcement of non-compete agreements. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding appears to expand, albeit minimally, the Court’s well-known Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson decision. In 2006, the Court in Sheshunoff expanded its prior decisions on non-compete agreements and found a non-compete agreement enforceable where (1) the employer expressly promised to provide the employee confidential information, (2) the employee expressly promised to not disclose the information, and (3) subsequently the employer provided the employee with confidential information.

Mann Frankfort differs from Sheshunoff, however, because the employer in Mann Frankfort made no express promise to provide the employee access to confidential information. Based on this failure to expressly promise to provide confidential information, the Court of Appeals refused to enforce the confidentiality agreement. The Texas Supreme Court, however, reversed the Court of Appeals and held that an implied promise by the employer to provide confidential information satisfies the Sheshunoff requirements.

Is there a possible pitfall with non-compete agreements that rely on an implied promise? The Court in Mann Frankfort, whether or not intentional, appears to limit an implied promise as it relates to non-compete agreements. The Mann Frankfort decision suggests an implied promise exists only “when the nature of the work the employee is hired to perform requires confidential information to be provided for the work to be performed by the employee.” This appears to indicate the Court might find, depending on the nature of the work, an employer did not impliedly promise it would provide confidential information. What type of work would result in an implied promise not being found? It is uncertain, but the Court almost certainly will determine an implied promise exists for CPAs (the position in Mann Frankfort). Beyond a CPA, we must wait to see if the courts extend Mann Frankfort to other professions or jobs.

So what does the prudent employer do? The easiest answer is expressly provide in your non-compete agreement that you (the employer) promise to provide the employee confidential information. There are many other issues with the validity and enforceability of non-compete agreements, but providing this express promise should limit exposure to any pitfalls in the Mann Frankfort decision.