Alex Sheshunoff Management Services, L.P. v. Kenneth Johnson and Strunk & Associates, L.P.

Summary

The Supreme Court of Texas revisits its prior decision in Light v. Centel Cellular Co. and holds that an at-will employee’s covenant not to compete may become enforceable when the employer performs promises that were illusory when made, such as providing confidential information or specialized training. The Court concludes that the covenant need only be ancillary to or part of an otherwise enforceable agreement at the time the agreement is made, rather than that the agreement be immediately enforceable at that time. The Court reverses the court of appeals’ judgment and remands the case.

Holdings

1. A covenant not to compete is not unenforceable solely because the employer's promise was executory when made. If the employer later performs the promise, forming an enforceable unilateral contract, the covenant may satisfy section 15.50(a) if all other statutory requirements are met.
2. The covenant was ancillary to or part of the agreement because ASM's promises to provide confidential information and training gave rise to its interest in restraining competition, and Johnson's promise not to disclose confidential information was the return promise the covenant was designed to enforce.
3. The covenant was reasonable under section 15.50(a), and Johnson and Strunk were not entitled to summary judgment on that ground.
4. Johnson and Strunk were not entitled to summary judgment because the covenant was enforceable, and Strunk was not entitled to attorney fees. The case was remanded because ASM's damages claim remained pending.

Questions Presented

1. Whether an at-will employee's covenant not to compete is enforceable under Texas Business and Commerce Code section 15.50(a) when the employer's promises to provide training and confidential information were executory and potentially illusory when the agreement was made but were later performed.
2. Whether the covenant's time, geographic, and activity limitations were reasonable and no greater than necessary to protect ASM's goodwill or other business interests.
3. Whether Johnson and Strunk were entitled to summary judgment and attorney fees.

Disposition

reversed_and_remanded