Texas Business Prevails on Injunctive Relief Enforcing Non-Compete Agreement, But Appellate Court Reverses Most of Money Damages Award

Legal News GavelIn today’s competitive business environment, it pays to take every possible precaution when it comes to protecting intellectual property, client lists, trade secrets, and the like. One way to do this is with a restrictive covenant such as a non-compete agreement, non-disclosure agreement, or non-solicitation agreement.

However, it is important that such agreements be properly drafted (without being overreaching) and executed in an appropriate fashion, or else a reviewing court may side with the employee if the agreement is breached and litigation ensues.

Facts of the Case

In a case recently considered by the Texas Court of Appeals, the plaintiff was a company that fabricates and services equipment used in the oil and gas industry. It filed suit against the defendants, a competitor and a former employee, seeking injunctive relief and monetary damages because the employee had gone to work for the competitor and was allegedly violating certain non-competition, non-disclosure, and non-solicitation agreements.

The trial court found in favor of the plaintiff and awarded it actual damages of $126,494.83 against the defendants, jointly and severally. This amount represented lost profits of $2,321.00; lost good will of $120,000.00; and unjust enrichment, fee forfeiture, and profit disgorgement in the aggregate amount of $4,173.83. The defendants appealed.

Holding of the Court

The appellate court reversed the trial court’s award of damages for lost profits and loss of goodwill and rendered judgment for actual damages of $4,173.83. On appeal, the defendants argued that the trial court had committed reversible error in both its award of damages and in its enforcement of the post-employment restrictions contained in the agreements between the plaintiff and its former employee. However, the court found no abuse of discretion with regard to the lower tribunal’s issuance of injunctive relief enforcing the restrictions on the former employee.

While the agreements themselves were found to be valid, the appellate court ruled that there was insufficient evidence in the record to support the trial court’s award of damages for lost profits and lost good will. In so holding, the court noted that there had been no explanation at trial as to how the alleged lost profits figure was determined. In order to prevail on this issue, the plaintiff should have provided the court with objective facts, figures, and data, as well as the method used to calculate the amount sought by the plaintiff.

With regard to lost good will (which the court described as “the advantages that accrue to a business on account of its name, location, reputation, and success”), the amount sought by a litigant such as the plaintiff in the case at bar must, too, be based on objective facts, figures, and data. The court found that the plaintiff’s evidence, which consisted only of testimony to the effect that the damage to its good will would be $10,000 a month for 12 months, was insufficient because there was no information as to how this estimate was reached.

Experienced Employment Litigation Attorneys in Dallas

Having effective legal counsel is very important when it comes to both drafting and enforcing agreements such as those at issue in the case discussed above. As with other legal matters, the prudent course of action is to contact an attorney sooner, rather than later. To schedule an appointment with a knowledgeable Dallas restrictive covenant attorney, call Key Harrington Barnes at 215-615-7925.

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