Stock options as consideration for noncompete

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Read our new series of articles about Autonomous Vehicles. Stock Options Now For Consideration for Noncompete Agreements in Texas July Consideration June 24,the Texas Supreme Court noncompete Marsh USA, Inc. Cook further restricted the ability of stock seeking to dodge noncompete noncompete in agreements with their employers noncompete allowing stock options to serve as the consideration supporting the agreement.

The Court also opened the door for the potential for other types of financial consideration to be options in noncompete agreements and furthered its expansive view on the enforceability of such provisions. Rex Cook, a managing director at Marsh USA, Inc. Cook's theory was that Marsh did not provide him adequate consideration at the time he signed his noncompete noncompete because all stock received was stock options instead of some other options of consideration often provided as a part of such agreements e.

The consideration for options claim was that stock options did not "give rise" to the interest Marsh was seeking to protect by entering into a noncompete agreement with him, a common law, but not statutory, requirement for enforceability. In response, Marsh contended the stock options given to Cook were adequate consideration because they sought to align his personal financial interests with the interests of the company to develop and maintain customer goodwill.

The Court agreed with Marsh that the options "enhance[d] the relationships between Marsh and its customers by helping the company retain highly motivated employees with an interest in the long-term success of the company, which, in turn enhances the goodwill of Marsh.

Under the Texas Covenants Not to Compete Act, a noncompete is enforceable only if: In the seminal case interpreting the Texas statute, Light v. Centel Cellular Companythe Texas Supreme Court held that for a noncompete agreement to be "ancillary to or part of" an "otherwise enforceable agreement" under the first prong, the for given by the employer in the for agreement must "give rise to the employer's interest in restraining the employee from competing.

As noted by the Court in Cookthis requirement generally limited the consideration that could support a noncompete to the employer's provision of trade secrets, confidential information, or some type stock special training. In recognizing that customer goodwill is also a protectable interest that an employer must be free to share with employees without fear that it will be unfairly exploited, for Court in Cook rejected the restrictive "gives rise to" requirement and held that Texas law for an employer to show only that the otherwise enforceable agreement be noncompete related" to a protectable options, such stock goodwill, trade secrets, or confidential information.

The Court held that Light 's requirement that the consideration in the otherwise enforceable agreement "give rise to for employer's interest in restraining the employee" was "contrary to the language of the Act" and "thwarts the purpose of the Act.

Analyzing the stock options received by Cook and Marsh's rationale for providing the stock options, the Court in Cook agreed with Marsh that when Cook exercised his stock options, he added to the goodwill of Marsh because he was incentivized to build a long-term relationship and contact with the company's customers. For Court further concluded that the enhancement options Marsh's goodwill through the stock options was reasonably related to the noncompete that sought to protect that goodwill, and therefore consideration.

The Cook decision marks noncompete expansion of the type of consideration that can support noncompete agreements in Texas and consideration the Court's departure from its holdings in Light v.

Employers may now provide stock options, and possibly other financial incentives, that generate goodwill when entering into noncompete agreements with employees. The Court's decision, however, leaves several for questions for courts faced with noncompete challenges over the coming years, such as 1 the types of financial compensation, incentives, or consideration that adequately enhance a company's goodwill and justify a noncompete protecting that goodwill; 2 whether there will be any limitations on the types of employees that can be restricted by financially based noncompetes; and 3 whether the scope of goodwill-protecting noncompete agreements will stock limited to customer nonsolicitation agreements i.

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