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Non-Compete Covenants in Texas - Recent Development


Note:  I am familiar with two of the three court of appeals judges that decided this case, Judges Keyes and Higley.  Judge Keyes' husband, an attorney in Houston and Austin, taught one of my classes in law school.  Judge Higley was a fellow member of the Garland Walker Inn of Court and was a judge of an appellate argument I gave.


Sentinel Integrity Solutions, Inc. v. Mistras Group, Inc. - First District Court of Appeals, Texas 

Facts:  Jody Olson, an employee of Sentinel, agreed to and executed a non-compete covenant that prevented him from performing for a competitor any duties encompassed by the role of a manager for Sentinel.  The non-compete included a geographic restriction on Olson working in locations in any one of seven different states, plus Trinidad and Tobago, and a time restriction for a period of three years.  After starting with Sentinel in August of 2009, Olson worked for the company a few months before deciding to leave in December of 2009.  After leaving Sentinel, Olson went to work for Mistras Group, Inc, doing similar work for his new company as he had done for Sentinel.

Sentinel sued and alleged that the non-compete covenant prevented Olson from working for Mistras. Before the case was submitted to the jury, Sentinel's attorney acknowledged that the geographic scope of the non-compete was overbroad.  However, Sentinel maintained that the rest of the non-compete was enforceable and should merely be reformed to limit the scope of the geographic restriction.  Olson's attorney testified as to his attorney's fees and asked for an award of approximately $750,000, which the jury awarded.  The trial court reformed the non-compete to allow for a less harsh geographic restriction and also entered a final judgment awarding Olson's attorney the $750,000 in attorney's fees.  Sentinel appealed, and the relevant focus of this analyses centers on Sentinel's claim that the award of attorney's fees was improper.

Holding:  The First District Court of Appeals affirmed the $750,000 award in attorney's fees to Olson's attorney.  The Court noted that Section 15.51(c) of the Texas Business and Commerce Code provides that an employee can recover attorney's fees in a dispute over non-compete covenants, and it is within the trial court's discretion on whether or not to award attorney's fees.  To recover attorney's fees under this section, a party must show that (1) at the time the non-compete was entered into, the employer knew a geographic restriction in the non-compete was broader than reasonably necessary and (2) the employer sought to enforce the covenant to a greater extent than necessary. 

In this instance, the Court held that Olson's attorney had properly proven up his attorney's fees under Section 15.51(c).  The Court noted that the jury found that Sentinel knew, that at the time the agreement was signed, it did not contain reasonable limitations and was broader than necessary.  The evidence and testimony introduced at trial supported this finding.  As well, the Court recognized that Olson's attorney had properly proven up his attorney's fees by way of nearly 170 pages of redacted invoices introduced into evidence at the trial court level as well as testimony as to the reasonable and necessary amount of attorney's fees that were requested.   

The Takeaway:  Employers need to be aware of the potential exposure they face for merely reforming a non compete covenant that is found to contain overly restrictive provisions.  Going forward, employers need to consider the time span, geographic location, and scope of duties protected under a non-compete covenant and ensure that each is reasonable at the time the agreement is executed.  Failure to do so could subject employers to having to foot the bill for the employee's attorney's fees in a case such as this.

Judgment:  The Court of Appeals affirmed the award of attorney's fees to Olson's attorney. 

Majority Opinion Judge:  Judge Keyes

Date:  October 22, 2013

Opinion:  http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=788d9df3-2080-43ef-a8e2-3ae75369a047&MediaID=90ed0746-b5c1-40a1-8f22-bcb77cabbc69&coa=%22%20+%20this.CurrentWebState.CurrentCourt%20+%20@%22&DT=Opinion

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