Marsh USA Inc. and Marsh & McLennan Companies, Inc. v. Rex Cook

Summary

The Supreme Court of Texas considers whether a covenant not to compete supported by stock options is unenforceable because the stock options did not give rise to an interest in restraining competition. The court holds that the covenant is ancillary to an otherwise enforceable agreement under the Texas Covenants Not to Compete Act because the stock options are reasonably related to protecting the company's goodwill. The court reverses the court of appeals and remands for further proceedings.

Holdings

1. A covenant not to compete is not unenforceable merely because the consideration supporting the agreement did not itself give rise to the employer's interest in restraining competition. Section 15.50(a) requires a nexus between the covenant, an otherwise enforceable agreement, and a legitimate business interest; the covenant must be ancillary to or part of that agreement in the ordinary sense of being supplementary to it or one of its components.
2. Goodwill is a protectable business interest under section 15.50(a), and stock options designed to align a key employee's interests with the company's long-term performance and customer relationships may be reasonably related to protecting that goodwill.
3. The Supreme Court did not decide whether the covenant was reasonable as to time, geographic area, or scope of activity. Those issues remained for the trial court, which could reform and enforce an overbroad covenant under section 15.51(c).
4. Texas law does not require the employee to receive consideration for a noncompete before the employer's interest in protecting its goodwill arises.

Questions Presented

1. Whether a covenant not to compete or solicit supported by stock options is unenforceable as a matter of law because the stock options did not give rise to the employer's interest in restraining competition.
2. What relationship between an otherwise enforceable agreement, the consideration supporting it, and the employer's protectable business interest is required under Texas Business and Commerce Code section 15.50(a).
3. Whether Texas law imposes a timing requirement that the employee receive consideration for the covenant before the employer's protectable interest arises.
4. Whether the covenant's limitations as to time, geographic area, and scope were reasonable and no greater than necessary.

Disposition

reversed_and_remanded