Unitel Corp. v. Decker

Court of Appeals of Texas
731 S.W.2d 636 (1987)

ELI5:

Rule of Law:

A covenant not to compete is enforceable if it is reasonable, which requires it to be necessary for the protection of the employer's legitimate business interests, not oppressive to the employee, not injurious to the public, and supported by consideration such as specialized training.

Facts:

Unitel Corporation sold and serviced cellular car phones in the competitive Houston market.
Appellees Barron, Pinchback, and Wells worked as sales representatives for Unitel.
Each employee signed an employment contract with a non-competition clause, prohibiting them from engaging in a similar business within 25 miles of Harris County, Texas, for one year after termination.
Unitel provided the employees with an extensive, unique, and confidential sales training program and furnished them with confidential customer leads.
None of the employees had prior experience in cellular phone sales before joining Unitel.
In 1986, all three employees left Unitel and began working for direct competitors in the same geographic area.
Barron and Pinchback went to work for Richard Decker's company, Coastal Cellular, and Wells went to work for Randy Decker's company, Executive Car Phones.
After leaving Unitel, at least one of the former employees contacted one of Unitel's current customers.

Procedural Posture:

Unitel Corporation filed lawsuits in Texas trial courts against its former employees (Barron, Pinchback, and Wells) for breach of their employment contracts.
Unitel also sued the new employers, Richard Decker and Randy Decker, for wrongful interference with business and contractual relationships.
In the trial courts, Unitel filed applications for temporary injunctions to prohibit the former employees from continuing to violate the non-competition agreements.
After separate hearings, the trial courts denied Unitel's applications for temporary injunctions.
Unitel, as appellant, appealed the denials to the Texas Court of Appeals, Fourteenth District.

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Issue:

Is a non-competition agreement that prohibits former sales employees from working for a competitor within a 25-mile radius for one year enforceable when the employer provided specialized, confidential training and customer leads?

Opinions:

Majority - Sears, Justice

Yes, a non-competition agreement is enforceable under these circumstances because its restraints are reasonable. A covenant not to compete is reasonable if it is necessary to protect the employer's legitimate business interests, is not oppressive to the employee, is not injurious to the public, and is supported by consideration. Here, the covenant was necessary to protect Unitel's legitimate interests in its confidential and unique training program and customer leads, which gave it a competitive advantage. The restriction was not unduly oppressive to the employees, as they had varied sales backgrounds and were not deprived of the ability to work in other sales fields. The covenant does not harm the public by preventing competition, and the special training provided by Unitel served as valuable consideration for the promise not to compete. Therefore, the covenant is reasonable and enforceable.

Analysis:

This case establishes that specialized employee training and confidential customer information, even if not rising to the level of a formal trade secret, are legitimate business interests that can justify a reasonable non-competition agreement. The court's balancing test emphasizes that a temporary inability to work in a highly specific field is not an undue hardship on an employee with transferrable skills. This decision provides a framework for employers to protect their investment in employee development and goodwill, while also distinguishing between a competitor who merely hires a former employee and one who actively induces the breach of contract for tortious interference claims.

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