Chapter § 9-2 The Twelve Elements in Drafting a Noncompete

• Jurisdiction: United States

9-2 The Twelve Elements in Drafting a Noncompete

9-2:1 Mutual Understanding—Sample Language

This nondisclosure, noncompete, and nonsolicitation agreement (the Agreement) is entered into on [insert date] between [me] and [company].

(a) The company provides [describes services on property].

(b) The company wishes to employ me under the terms and conditions of this Agreement and to protect its confidential information as discussed in this Agreement.

(c) I want to become employed by the company subject to the terms and conditions of this Agreement.

(d) Before my decision to accept employment with [the company], and prior to signing this Agreement, I knew that signing the Agreement was a condition of employment with the company. Further, I acknowledge that I understood, before I signed this agreement, that it would restrict my ability to compete with the company, to solicit the company's clients and/or to solicit the company's employees should I leave employment, and that it would prohibit me from disclosing confidential information.

(e) This Agreement is personal in nature and I will not, without the prior written consent of the company, sign or transfer this agreement or any rights or obligations in it.

9-2:1.1 Commentary

Consider writing a noncompete in the first person, not the third. The use of "I" is always more persuasive in cross-examination.

9-2:2 My Duties

I will be employed by the company as [ ]. I agree that I will serve the

company faithfully and will perform my duties to the best of my ability. And, I agree to abide by the company's rules, regulations, and practices. Further, I acknowledge and agree that prompt and regular attendance is an essential function of this job. I also agree to devote my full business time, energy, and diligence to the business and affairs of the company.

9-2:2.1 Commentary

Litigation arises when an employee makes plans to leave a current employer and set up his own company or to work for others.

This provision can be therefore useful in a breach of fiduciary duty claim. But, note that courts look at these claims along a continuum.

• Navigant Consulting Inc. v. Wilkinson, 508 F.3d 277 (5th Cir. 2007) (clear breach where employees, prior to leaving to go to a competitor, provided detailed business estimates including revenue projections to prospective employer).

But, merely preparing to leave to go to a competitor or start one's own business will not be a breach.

• Ameristar Jet Charter, Inc. v. Cobbs, 184 S.W.3d 369 (Tex. App.—Dallas 2006, no pet.) (no breach of fiduciary duty; while an employee formed a competing business while still employed, employee did not actually compete until after he resigned).
• Abetter Trucking Co., Inc. v. Arizpe, 113 S.W.3d 503 (Tex. App.—Houston [1st Dist.] 2003, no pet.) (at-will employee may take steps to compete with his employer while still employed; the employee has no general duty to disclose his plans and may secretly join with other employees without violating any duty to the employer).

Names listed in the noncompete matter, and the correct employer entity must be named. If not, the covenant is unenforceable.

• United States Risk Ins. Grp. v. Woods, 399 S.W.3d 295 (Tex. App.—Dallas 2013, no pet.) (noncompete unenforceable; entity named in agreement was a holding company and did not conduct business; correct entity was a subsidiary, but court holds it was not a third-party beneficiary).

But note, the mere misnaming of an entity will not defeat a noncompete as the Dallas Court of Appeals in 2014 held, noting that a misnomer of an entity does not excuse compliance with a noncompete.

• AmeriPath, Inc. v. Hebert, No. 05-12-00321-CV, 2014 WL 3827834 (Tex. App.—Dallas Aug. 5, 2014, no pet.) (corporate entity in noncompete agreement was misnamed; in reversing summary judgment for the employee, the court held that a misnomer does not excuse noncompliance with a noncompete where the employee was not misled, and the entity's identity was substantially apparent).

9-2:3 Employment Terms

(a) At-will employment. This Agreement is not to be considered a commitment or guarantee of any kind that the company will continue to employ me, and it will not affect in any way the ability of the company to terminate my employment at any time and for any reason. By signing below, I acknowledge and agree that my employment is "at-will." Similarly, I understand that, consistent with the terms of this Agreement, I am free to leave employment at any time and for any reason.

(b) Wage deduction authorization. I authorize the company to make deductions from my compensation, including any final paycheck, that are necessary to comply with state or federal laws regarding withholdings, to compensate the company for property not returned, and/or to recover advances or overpayments paid to me.

9-2:4 Confidential and/or Trade Secret Information

I acknowledge that I have been provided information that the company considers to be confidential and/or a trade secret information and have since the inception of my employment. This information has consisted by way of example:

(a) technical information, such as trade secrets, patents, designs, design analysis, mathematical models, predictions, intellectual property, computer software and programs, and data-based technologies [add more as appropriate];

(b) business information, such as client good will, products and product plans, designs and drawings, pricing strategies, profit margins, customer and prospective customer lists and preferences, marketing strategies and materials, tailored sales plans, sales proposals and techniques, marketing or business plans, fee schedules, unpublished financial data, and processes and compilations of information [delete or add more as appropriate]; and

(c) personnel information, such as salaries, personnel list, personnel training materials, and organizational charts [delete or add more is appropriate].

The failure to designate particular information as confidential and/or proprietary, or as a trade secret, shall not preclude any later claim by the company that such information is confidential and proprietary.

9-2:4.1 Commentary

Several points.

First, the promise to provide such information can be implicit, and need not be explicit.

• Mann Frankfort, 289 S.W.3d at 851-52 (Texas Supreme Court holds that it is sufficient if employee is in a position where it is implicitly understood that employee will be receiving confidential information).

Second, there need not be a contemporaneous exchange of confidential information at the time the agreement is signed.

• Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 655-56 (Tex. 2006) (need not be contemporaneous exchange of information; court cuts to the standard by which covenants must be judged: "Concerns that have driven disputes over whether a covenant is ancillary to an otherwise enforceable agreement—such as the amount of information an employee has received, its importance, its true degree of confidentiality, and the time period over which it is received—are better addressed in determining whether and to what extent a restraint on competition is justified") (emphasis added)).

In other words, if there is some valid consideration, the noncompete agreement's applicability (is it needed), and then its extent (what is its scope), can be decided. Again, this assures that the two entities are in competition. This is always the threshold inquiry.

9-2:4.1a Alternative Language: Confidentiality and Non-Disclosure Agreement

(a) The Company agrees to disclose, and I agree to receive and to help develop, Confidential Information, including trade secrets. I agree that I shall not at any time, without the prior written consent of the Company, disclose or use (except in course of employment by the Company and solely in furtherance of the interests of the Company) any of this confidential or proprietary information, including, but not limited to, class design information (including format, choreography, and techniques), company directories, databases, business strategies, processes, computer software, use of software, records, data, pricing, and specially negotiated pricing information, confidential client information, client business habits, client rates, client short-term and long-term need, Company sales reports and analysis, marketing plans, potential clients, targeting new clients, plans for business growth, research and development plans, pricing strategies, business methods, financial...