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Employee noncompetition clause invalidated because linked to stock-option grant, not to confidential information

A appeals court has affirmed a ruling that an employee noncompetition covenant was invalid under Texas law because the noncompete was tied to the issuance of a stock-option grant to the employee and not to a promise to protect confidential information:

To be ancillary to or part of an otherwise enforceable agreement, a covenant not to compete must meet the following two conditions:

(1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer’s interest in restraining the employee from competing; and

(2) the covenant must be designed to enforce the employee’s consideration or return promise in the otherwise enforceable agreement.

… The most common types of consideration given in return for a covenant not to compete are a company’s trade secrets or other confidential information. … Financial benefits, on the other hand, do not give rise to an interest worthy of protection.

Marsh USA Inc. v. Cook, No. 05-08-00685-CV (Tex. App.—Dallas May 26, 2009) (affirming grant of partial summary judgment in favor of former employee) (citations omitted).

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