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.
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.