Texas Appellate Court Decision Reminds Us to Take Care When Drafting Conditions Subsequent in Non-Compete Clauses
A Texas Appellate Court upheld a decision that a non-compete clause in two separate agreements was not enforceable against an ex-employee who resigned to work for a competitor. The court’s decision is a good reminder that non-competes must be drafted with extreme scrutiny, especially those offering conditions subsequent clauses; otherwise a former employee may be able to ignore them and remain unpunishable.
Jason Player was an IT manager working for East Texas Copy Systems, Inc. (also known as Copy Systems.) He sold his business to Copy Systems, who requested that he sign both a non-compete agreement and an asset purchase agreement, both of which barred him from competing with Copy Systems for a named period of time. The contracts also had an identical clause saying “i]f . . . Player’s employment with [Copy Systems] is terminated prior to two years from the date of this Agreement [July 1, 2013] for any reason other than a for cause termination, this non-compete Agreement will no longer be binding.” Player resigned from his position effective June 30, 2015 – one day before the two-year period ended – and immediately took a job with a competitor’s IT department. Copy Systems promptly sent a cease and desist letter, claiming he was in violation of clauses found in both the asset purchase agreement and non-compete agreement.
Texas Courts: Can the Non-Compete Clauses Be Thrown Out?
Player filed suit against Copy Systems and requested that the court find that he no longer be forced to comply with the non-compete clauses that barred him from working for Copy System’s competition. Copy System countersued, asking that the clauses be upheld and the court award them damages for breach of contract. At the hearing, the court granted Player’s motion for summary judgement and denied Copy System’s own motion for summary judgement. Copy System appealed the case.
The Court Takes Issue with the Conditions Subsequent Clause
Copy System’s clause, which stated their non-compete was no longer valid if an employee resigned within the stated two-year period, was the main source of contention between the parties. While the company argued that it should be interpreted to mean the non-compete would still be in effect after employment was terminated, no matter if the employee were fired or left of his own volition, Player disagreed. In his opinion, the clause applied to termination, whether it was the company or the employee who terminated employment. Both the trial and appellate courts viewed this clause as a conditions subsequent clause, meaning the employee could be excused from his legal obligations upon the existence of the condition. Therefore, the appellate court sided with Player, saying the clause did not specify which party needed to terminate employment, and the trial court’s decision was upheld.
Talk to a Texas Business Lawyer
The above case is a good example of how important it is for your business that your non-compete agreements be carefully worded. Copy System’s failure to provide clarity to their one-sentence clause ultimately pushed the courts to rule against them. If you need help drafting non-competes or any other business agreements, you might want to speak to a seasoned Texas business attorney. Garcia-Martin & Martin, P.C., a business and employment law firm located in Sugar Land, TX, has spent years helping businesses draft solid agreements and contracts. Call today at 281-277-3066 or visit the website at www.mgmartinlaw.com.