Dallas Court of Appeals, No. 05-11-00558-CV (February 25, 2013)
Justices O’Neill (opinion), FitzGerald, and Lang-Miers
The court of appeals affirmed summary judgment in an employee’s favor and against his former company’s claim for breach of non-competition clauses. The contract at issue contained two alternatives. The first, which would be triggered by resignation without good reason, contained a 90-day post-resignation prohibition on employment with a competing business, plus a one-year prohibition on solicitation of the company’s customers. The second, triggered by resignation with good reason, contained only the latter restriction.
The appeals court began by considering whether the employee resigned with good reason. The court agreed with the employee that he would have suffered more than a 10% reduction in aggregate pay in the upcoming year if he had continued his employment, and this satisfied the contract’s definition of “good reason” for resignation. In any event, the court concluded that the 90-day ban on employment with a competitor was an unenforceable “industry-wide” non-compete.
The court next addressed the one-year solicitation restriction, which applied whether or not the employee resigned for good reason. The one-year restriction prohibited solicitation of “the Company’s” customers, and the agreement defined “the Company” as U.S. Risk Insurance Group (USRIG). But USRIG is only a holding company with no customers of its own. The operating entity whose customers were at issue (USR) was not a party to the contract. USR pointed to a provision in the contract that stated the agreement would be binding upon and inure to the benefit of USRIG’s subsidiaries and affiliates, which would include USR. The court held that, even if this clause made USR a third-party beneficiary, that status would not change the unambiguous language of the contract, which only prohibited solicitation of USRIG’s customers. Because USRIG had no customers, the employee could not have breached the agreement, and summary judgment was proper.
