Byron R. Berry

Definitions and Enforcement of Covenants Not to Compete

1. Definitions

 The law uses complex, and often times confusing terminology. This entry is designed to help the reader follow along as Covenants not to Compete are discussed more in depth over coming articles.

 A “Covenant not to Compete” is an agreement not to engage in the same type of business or trade within the same area as one’s Employer after termination of their Employment.

“Jurisdiction” is the power that a Court has to hear a case. Contracts between parties can, and often do, agree that certain Courts will have Jurisdiction over any disputes arising from that contract.

An “Injunction” is an order from a Court of competent Jurisdiction, prohibiting a person or entity from doing something. Unlike a Judgment, which typically orders money to be paid from one party to another, an Injunction can specifically direct a party to stop doing or performing some action; in the context of Covenants not to Compete, Injunctions can prohibit the former employee from competing with the employer.

“At-Will” is a type of Employment where the Employer or Employee may discontinue the employment relationship at any time, for any reason. Most instances of employment, and almost all employment relationships without a contract are “At-Will”.

“Term” Employment is when, in a contract between the Employee and Employer, the parties have agreed that the Employee will remain employed for a certain period of time. Often times, these agreements come with other rights and responsibilities, such as the Employer’s right to terminate the employment for “cause”; in other words, if the Employee has failed to perform their duties to a certain standard, or has committed some other bad act.

Confidential Information is a general term, which refers to information that is privileged, protected, or through some actions taken by the holder of that information, not generally known outside of the holder’s organization.

Trade Secrets are more particular than “Confidential Information. A trade secret is “any formula, pattern, device or combination of information used in one’s business which gives one an opportunity to obtain an advantage over competitors.” Hallmark Personnel of Texas, Inc. v. Franks, 562 S.W.2d 933, 935 (Civ. App.–Houston [1st Dist.] 1978, no writ).

 “Goodwill” is an asset of a business generated by the labor, and customer relations of a person, typically while working on behalf of a business. “Good will” is generally understood to mean the advantages that accrue to a business on account of its name, location, reputation, and success. Swinnea v. ERI Consulting Engineers, Inc., 236 S.W.3d 825 (Tex. App. Tyler 2007), reh’g overruled, (Nov. 19, 2007).

 Good will may be defined as an advantage that arises and grows out of a business on account of name, location, reputation, and success, resulting in the expectation of continued public patronage, and the probability that old customers will resort to the old place.

 The good will of a business is considered a valuable property right, distinct from the business itself. Good will is an integral part of the business, just like the physical assets of the concern. Airflow Houston, Inc. v. Theriot, 849 S.W.2d 928 (Tex. App. Houston 1st Dist. 1993).

2. Enforcement

Enforcement of a Covenant not to Compete is generally accomplished by filing a lawsuit. In an effort to preserve the status quo, a party seeking to enforce a Covenant not to Compete will request an Injunction enforcing the terms of the covenant. The distinction between a Temporary Restraining Order, Temporary Injunction, and Permanent Injunction will be the subject of future entries.

If granted the Injunction, the party seeking to enforce the Covenant, may subsequently seek a Judgment against the other parties, requesting the Court determine the scope of the Covenant, declare the covenant valid and enforceable, and entering a Permanent Injunction against the former Employee. Damages are generally not available in an action solely to enforce a Covenant not to Compete.

Next entry: What to do when an Employee with a Covenant not to Compete leaves, or is fired.