WITH THE STROKE OF A PEN – THE TEXAS SUPREME COURTS UPENDS FOUR DECADES OF NON COMPETE POLICY

The script could not have been written better, whether as political theater or a jaunty summer read. On the Friday before the labor-day weekend, the Texas Supreme Court laid the groundwork to dispense with anti restraint of trade labor law policy that has stood in Texas for almost four decades. In a stunning decision in Exxon Mobil Corp. v. William Drennen, III, the Texas Supreme Court openly stated its policy shift to accommodate for the changing Texas market, affected by the presence of global players. With Texas now home to more fortune 500 companies than any other state, even New York and Delaware, this decision is an ominous wind across Texas’ pro competitive landscape.

The facts in Drennen are as follows: a long time employee (31 years) of Exxon Mobil was told in 2006 that he was going to be replaced, but that they were looking for another position for him. Thereafter, rather than be let go, Mr. Drennen found a new position at Hess and gave his notice. Exxon Mobil then informed him that if he left for Hess, they would terminate his unvested incentive awards. Mr. Drennen ignored the warning and Exxon Mobil revoked his unvested shares. Thereafter, Mr. Drennen instituted a lawsuit to recover his shares. He lost at the trial court, which was reversed by the Court of Appeals, and now reversed against by the Texas Supreme Court, which also alters this state’s public policy.

Any discussion regarding non-competes must start with what Texas courts have routinely held, and what lawyers in the non-compete arena spout as their mantra: Texas courts disfavor restraints on trade, and restraints on trade are viewed under the same filter as the rules applicable to covenants not to compete.

The contract in Drennen was governed under New York law. The lower appellate courts in Texas held that even if it was governed by the laws of a foreign jurisdiction, Texas will not abrogate its public policy favoring employees’ right to work. The Texas Supreme Court went out of its way to hold that Texas has to move away from its patriarchal approach in this area of the law. The Texas Supreme Court never states why upholding this state’s public policy is patriarchal, but that’s a topic for another post.

The rationale for the decision was that with Texas now hosting many of the world’s largest corporations, our public policy has shifted from a patriarchal one in which we valued uniform treatment of Texas employees from one employer to the next above all else, to one in which we also value the ability of a company to maintain uniformity in its employment contracts across all employees, whether the individual employees reside in Texas or New York. This prevents the “disruption of orderly employer-employee relations” within those multistate companies and avoids disruption to “competition in the marketplace.”

Signing a decision in which two of the justices sat out, the high Court held that freedom of contract should, would and now does trump even our stated public policy.

View Attorney Profile

Mr. Charles Marcellus Vethan

Licensed since 1994

Member at firm The Vethan Law Firm, P.C.

AWARDS

AV Preeminent

RECENT POSTS

  • The Legal Plan To Your Successful Business
    Posted on March 28, 2015
    Topic: Business Law

    Your business is formed.  The organizational paperwork is filed with the state.  You know your products and services, your rate of return, your market, and your brand.  You’ve got the right property leased or purchased for your operations, and you’ve found a great manager.  Your business partner is the best.  Your business plan is solid.  You and your team are working ... Read more

  • Estate Planning for Business Owners
    Posted on March 28, 2015
    Topic: Business Law

    It’s something you may hear casually thrown about at the office, or maybe something you even say it to yourself after you barely avoid an accident on your way to work—I need a will.  And while everyone needs a will, small business owners have very special needs that they themselves may not even realize. Your ... Read more

  • Texas Supreme Court Removes Shareholder Oppression Remedies
    Posted on March 28, 2015
    Topic: Business Law

    On June 20, 2014, the Texas Supreme Court issued a decision making carefully negotiated and drafted shareholder agreements a necessity for minority shareholders. In Ritchie v. Rupe, the Court ruled that no longer can minority shareholders of a closely held corporation force the majority shareholders to buy-out their interest through a claim of “oppressive” conduct. ... Read more

Mr. Charles Marcellus Vethan

Licensed since 1994

Member at firm The Vethan Law Firm, P.C.

AWARDS

AV Preeminent

RECENT POSTS

  • The Legal Plan To Your Successful Business
    Posted on March 28, 2015
    Topic: Business Law

    Your business is formed.  The organizational paperwork is filed with the state.  You know your products and services, your rate of return, your market, and your brand.  You’ve got the right property leased or purchased for your operations, and you’ve found a great manager.  Your business partner is the best.  Your business plan is solid.  You and your team are working ... Read more

  • Estate Planning for Business Owners
    Posted on March 28, 2015
    Topic: Business Law

    It’s something you may hear casually thrown about at the office, or maybe something you even say it to yourself after you barely avoid an accident on your way to work—I need a will.  And while everyone needs a will, small business owners have very special needs that they themselves may not even realize. Your ... Read more

  • Texas Supreme Court Removes Shareholder Oppression Remedies
    Posted on March 28, 2015
    Topic: Business Law

    On June 20, 2014, the Texas Supreme Court issued a decision making carefully negotiated and drafted shareholder agreements a necessity for minority shareholders. In Ritchie v. Rupe, the Court ruled that no longer can minority shareholders of a closely held corporation force the majority shareholders to buy-out their interest through a claim of “oppressive” conduct. ... Read more