Texas Non-Compete Agreements Lawyer & Attorney : K&L Gates : Trade Secret Litigation : Serving Austin, Dallas, San Antonio

In several states, an employer may--via a non-compete agreement--prevent a departing employee from taking advantage of the relationships the employee developed with the former employer's customers.  This is true whether or not the identities of the former employer's customers are "confidential."

In those states, therefore, the former employer can successfully contend, "We introduced you to our customers and you've developed good relationships with them, but you can't compete with us by taking advantage of those relationships."

There are actually a couple of Texas Supreme Court cases that stand for the proposition that protecting customer relationships is an interest sufficient to justify a non-compete agreement.  However, those cases have been largely ignored in recent years.

In Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 387 (Tex. 1991), the court noted:

The fundamental legitimate business interest that may be protected by such covenants is in preventing employees or departing partners from using the business contacts and rapport established during the relationship of representing the accounting firm to take the firm's customers with him.

In an earlier case, Henshaw v. Kroenecke, 656 S.W.2d 416, 418 (Tex. 1983), the court had stated:

Henshaw had a right to protect himself from the possibility that Kroenecke would establish a rapport with the clients of the business and upon termination take a segment of that clientele with him.

Today, whenever an employee leaves and begins "stealing" his former employer's customers, courts focus on whether the identities of those customers are "confidential."  Usually, they are not.

To determine whether customer identities are confidential, courts ask questions such as, "Can the information be easily located (e.g., in telephone books or trade journals)?, and "Did the employer take reasonable steps to keep the information confidential?"  These standards are difficult to meet.

But in several other states, the employer need not prove that the information is confidential.  Rather, protection of the employer's relationship with its customer--whether or not the customer's identity is secret--is sufficient to support a non-compete agreement.  A few Texas cases used to speak in those terms as well.

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Very often, a departing employee won't take customer lists or other confidential documents with him, but a lot of the information he has memorized will be considered by his former employer to be confidential.  Customer names and contact information, for example, are routinely memorized by sales representatives.  Nevertheless, the sales representative's employer typically contends that such information is confidential.

Some states have adopted the so-called "memory rule," according to which the departing employee may use anything that's in his head to memory.  Thus, as long as the employee didn't take the customer list with him, he may use the information from that list that he has committed to memory.

In Texas, though, authority exists for the proposition that whether the information is contained on a document the employee has taken or in the employee's head, trade secret protection may attach to the information.  The key inquiries are:  (a) whether the information is really secret (e.g., whether it is widely known in the industry); and (b) what steps did the employer take to keep the information secret?

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Interesting piece regarding Wal-Mart's attorneys visiting an Arkansas judge's home after hours to obtain a temporary restraining order.  The injunction, issued on an ex parte basis, was designed to prevent an imminent disclosure of trade secrets.

http://www.dailyreportonline.com/Editorial/News/new_singleEdit.asp?individual_SQL=4%2F11%2F2007%4014581_Public_.htm 

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