DeSantis v. Wackenhut Corp.
793 S.W.2d 670 (1990)
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Rule of Law:
Under the Restatement (Second) of Conflict of Laws § 187, a contractual choice-of-law provision will not be enforced if the chosen state's law would be contrary to a fundamental policy of a state which has a materially greater interest in the determination of the issue and would be the state of the applicable law in the absence of an effective choice by the parties.
Facts:
- Edward DeSantis was hired by Wackenhut Corporation, a Florida-chartered and headquartered company, to serve as its Houston area manager.
- Some initial employment negotiations occurred in Florida, but DeSantis primarily worked and resided in Texas.
- At the inception of his employment in 1981, DeSantis signed a non-competition agreement in Texas.
- The agreement stipulated that for two years after his employment, DeSantis would not compete with Wackenhut in a forty-county area in South Texas.
- The contract contained a choice-of-law clause stating that any questions concerning its interpretation or enforcement would be governed by Florida law.
- In March 1984, DeSantis resigned from Wackenhut and formed a new security consulting company, Risk Deterrence, Inc. (RDI).
- DeSantis sent letters announcing his new venture to about twenty or thirty businesses, half of whom were Wackenhut clients.
- Within six months, one Wackenhut client, Marathon Oil Company, terminated its contract with Wackenhut and signed a contract with RDI.
Procedural Posture:
- Wackenhut sued DeSantis and RDI in a Texas trial court, seeking an injunction and damages for breach of the non-competition agreement.
- The trial court issued a temporary restraining order and later a temporary injunction against DeSantis and RDI.
- DeSantis and RDI filed counterclaims against Wackenhut for fraud, state antitrust violations, and wrongful injunction.
- The trial court granted a directed verdict against DeSantis and RDI on their fraud claim and summary judgment against them on their tortious interference claim.
- A jury found that DeSantis had breached the agreement.
- Applying Florida law as specified in the contract, the trial court issued a permanent injunction against DeSantis and RDI, though it reduced the geographic scope, and denied all of their counterclaims.
- The Texas Court of Appeals affirmed the trial court's judgment.
- DeSantis (as appellant) sought review from the Supreme Court of Texas, with Wackenhut as the appellee.
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Issue:
Does a contractual choice-of-law provision that selects Florida law to govern a non-competition agreement violate Texas's fundamental public policy when the employee is a Texas resident, the work was performed in Texas, and Texas has a materially greater interest in the dispute?
Opinions:
Majority - Hecht, Justice
No, the contractual choice-of-law provision is not enforceable because applying Florida law would violate a fundamental public policy of Texas. Adopting the Restatement (Second) of Conflict of Laws § 187, the court determined that Texas has a more significant relationship to the transaction and the parties than Florida, as the place of performance and the employee's residence were in Texas. The court declared that the law governing the enforceability of non-competition agreements is a matter of fundamental policy in Texas, aimed at ensuring uniformity and protecting employees. Applying Texas law, the court found the agreement unreasonable and unenforceable because Wackenhut failed to demonstrate that the restraint was necessary to protect a legitimate business interest, such as goodwill or confidential information, and that this need outweighed the hardship imposed on DeSantis.
Concurring - Mauzy, Justice
Yes, I concur in the judgment that the non-competition agreement is unenforceable. However, the majority's extensive discussion rejecting the 'common calling' doctrine established in prior cases like Hill and Bergman was unnecessary to resolve this case. The agreement is unenforceable under established principles without addressing the 'common calling' test, making the majority's analysis gratuitous dicta. Furthermore, I disagree with the majority's conclusion that recent legislation has definitively rejected the common calling doctrine, as the statute's language regarding 'scope of activity' could still encompass it.
Analysis:
This decision formally adopts the Restatement (Second) of Conflict of Laws § 187 as the standard for evaluating contractual choice-of-law clauses in Texas. It establishes a significant precedent by defining the enforceability of non-compete agreements as a 'fundamental policy' of the state, thereby preventing employers from circumventing Texas's more stringent employee-protective laws by contractually selecting the law of a more employer-friendly state. This ruling solidifies Texas law as the governing authority for non-compete agreements involving Texas-based employees and performance, impacting how national corporations must draft employment contracts for their Texas workforce. The opinion also signals a shift away from the confusing 'common calling' test toward a more direct reasonableness analysis focused on protectable interests.
