*1 LIGHT, Petitioner, CENTEL CELLULAR COMPANY OF
TEXAS, Successor-in-Interest
Telespectrum, Inc., Respondent.
No. D-3262.
Supreme Court of Texas.
Argued Feb.
Decided June Smith, Grajczyk,
Gregory P. Bruce A. Longview, petitioner. for Womack, Akin, Longview, T. James G.R. respondent. *2 643 Centel, 1988, the succes- after as Justice, May of and CORNYN, opinion of delivered the United, to volun- PHILLIPS, to declined Court, in which Chief sor-in-interest GONZALEZ, HECHT, not to Justice, Light from the covenant tarily release SPECTOR, GAMMAGE, Light Centel. compete, ENOCH and sued Justices, join. 1989, responding to decisions In case,1 In this restraint court, passed the Legislature this Company of Tex- Light Cellular sued Centel Act, adding Compete a bill Not to Covenants (Centel), successor-in-interest as Busi and 15.51 to the Texas 15.50 sections (United), claiming, among TeleSpectrum, Inc. 16, Acts of June Code.2 ness and Commerce compete not to things, that a covenant other 1193, 1989, § 4852 1 1989 Tex.Gen.Laws ch. signed unenforceable that she had was 1989). (effective 28, 1989 amend Aug. The sought damages from Cen- Light also void. in 1993. amended were themselves ments prospective tortious interference with tel for 965, § 1 1993 May ch. Acts of judg- The trial court rendered contracts. 1993). (effective Sept. 4201 Tex.Gen.Laws compete was that the covenant not to provides: now Section 15.50 dam- and that recover unenforceable Enforceability 15.50. Criteria ages against for her tortious interfer- Centel Compete not to Covenants appeals reversed claim. The court of ence Notwithstanding [which 15.05 Section noth- judgment take rendered competi- on generally declares restraints Centel, ing against holding that the covenant code, a covenant not unlawful] tion of this enforceable. 841 S.W.2d 99-100. was if it is compete is enforceable seq. 15.50 et of the Texas Under sections of an otherwise enforceable (“the Business and Commerce Code Cove- agreement at the time the Act”), govern Compete nants Not to it contains limita- to the extent that made case, of this we hold that the our resolution area, time, geographical tions as to is unenforceable. activity that are scope of to be restrained Although Light and did have an oth- greater impose reasonable and do them, erwise enforceable necessary protect the restraint than is the covenant was not of the goodwill other business interest agreement. Ac- that otherwise enforceable promisee. cordingly, judgment of the we reverse the (Vernon Supp. § 15.50 TexJBus. & Com.Code appeals the ease to that court of and remand 1994). added amendments also The 1993 proceedings for further court consistent 15.52, provides that: section opinion. Preemption Law of Other 15.52.
In was hired sell enforceability of a cove- granted a li- The criteria for pagers. In United was compete provided Section nant not to cense to sell cellular mobile communications procedures and of this code and the products Longview/Ty- 15.50 and services a covenant in an action to enforce keep remedies market area. order ler/Marshall 15.51 compete provided Section job begin her and before she was able preempt required of this code are exclusive and selling products, Light was cellular enforceability of a cove- other criteria for to execute an which included procedures and compete. resigning nant not After 13, 1988) cause, (July supersed 616 prior opinion [31 37 hut Tex.Sup.CtJ. Tex.Sup.Ct.J. 1. Our in this 6, 1993) curiam), (Oct. (Tex.1990)] (per opinion by, was withdrawn relat 17 793 670 ed S.W.2d set for submission. 37 compete, when this cause was oral there are some covenants (Feb. 2, 1994). Tex.Sup.Ct.J. construe and that courts indications legislative legislation consistently apply Hamilton, Robert W. The Texas Business See monitoring devel intention. The Foundation Legisla Proposed Law Foundation and Business area, may propose addition opments in this Texas, (Tex.) 36- tion in Corp. Rev. Counsel warrant.”) (foot developments legislation if al (1991) ("Despite the enactment of Foundation omitted). note legislation sponsored in 1989 to overrule certain aspects portion v. Wacken of the DeSantis in an action to enforce a covenant restrained that are reasonable and do not remedies impose greater necessary under common law or oth- restraint than is goodwill erwise. protect or other business promisee. enforceability interest (Vernon Supp. *3 15.52 Tex.Bus. & Com.Code compete, including of a not to the covenant 1994). Section 15.52 makes clear that the question a not of whether covenant to com- Legislature intended the Not to Covenants trade, pete is a reasonable restraint of is a Compete largely supplant Act to the Texas question of law for the court. Martin v. relating to of common law enforcement cove- Ass’n, Inc., Credit Protection 793 S.W.2d Thus, compete. apply nants we the not (Tex.1990). 667, 668-69 Compete Covenants Not to Act to the facts case, “any of this lieu of other criteria for first determine under the terms of the We enforceability compete of a covenant not to compete the statute whether covenant procedures or and remedies in an action to part this ease is to or a of compete enforce a covenant not to under otherwise enforceable at the time applying or common law otherwise.” Before is made. re- the Section 15.50 Act, Compete though, the Covenants Not to quires inquiries us to make initial as to two applies we must determine whether it to this (1) compete: of formation the restraint, particular predates these is there an otherwise enforceable amendments. 5 of the 1993 amenda- Section (2) to which the covenant tory provides act that: part a of at the to or the time is made. applies This to a not to com- Act covenant before, on, pete entered into or after the effective date of this Act unless the en- I.
forceability of the covenant has been final- Although Light employee-at- anwas adjudicated ly competent a court of will, definition, employer and she and her jurisdiction [Sep- before the effective date could not have an “otherwise enforceable tember of Act. 1993] to, agreement” pertaining between them 13, 1993, May Acts of ch. 5 1993 employment, example, the duration of her at- (effective 1993). Sept. Tex.Gen.Laws 4202 preclude will does not the for Compete Act the Covenants Not employer mation of other contracts between retroactively applies to this ease.3 employee. employees con At-will employers tract with their on maker provides 15.50 two criteria Section ability except limit the of those which would enforceability for the of a covenant not to or to terminate either compete: the covenant must be employment at for a the will. Consideration part agreem of an otherwise enforceable promise, by either the or the em is made ent4 at time time, ployer employment, in an cannot be geo contain limitations as to area, activity dependent on of continued graphical scope of to be constitutionality of is unreasonable unless it is of and subsid 3. We do not address the iary to an otherwise valid transaction or rela application has retroactive because this issue tionship, gives to an interest rise preserved been for our review. protection.... or rela of Such transactions tionships purchase and sale of a include the original amendatory of the 1993 4. The version business, employment relationships. provided had to be ancil act that the covenant Although Legislature appears have intend- lary a “valid transaction rela enforceability covenants not ed to broaden the tionship.” law This is identical to common employment relationships, requirement, which we stated DeSantis con- committee substitute selected the narrower (Tex. Corp., 793 S.W.2d Wackenhut agreement,” cept of "an otherwise 1990): otherwise valid transaction instead of "an relationship.” be ancil [ An] Committee House on Business Leg., lary 73d R S. otherwise valid transaction or rela Tex.H.B. to an Industry, Analysis, Bill (1993). competition tionship on .... Such a restraint illusory.7 This any promise is illusory ation for would ment.5 Such with our recent promisor holding who not conflict it fails to bind does because Masters, discontinuing Inc. v. Star in Travel always option retains decision East Inc., performance. (Tex.1992), Tours, in lieu be- S.W.2d 830 Scott, R. Co. v. Tex. Line & Red River no otherwise in that case there was cause (noting that in at-will 10 S.W. agreement between of contract employment, “it is no breach similarly held that the at-will and we services”). further When refuse to receive could not constitute relationship alone support pur- all that illusory promises are Id. an otherwise enforceable contract, is no con- there ported bilateral 832-33. short, that “otherwise we hold tract.6 *4 Light and “agreement” between the can emanate from agreements” that United,8 only promises three there are long so as the consider- employment at-will agreement at the time the employer by or em- Any promise made either 5. required by § 15.50. period is made” as depends ployee on an additional that illusory employment because it is conditioned is of black- exclusively conclusion on the basis something within the 7. We reach this upon that is law, Legisla- the promisor. generally and not because See E. Allan letter contract control of the 15.51, (1982) which (explaining "at-will” to ture added the words Contracts Farnsworth, part: provides, pertinent obligation promise of a is terminable now that if the Thus, will, prom- illusory). the promise is at the (b) primary purpose of the If the example, employee, to an at-will for ise of a raise obligate ancillary to covenant is is to which the illusory dependent upon would be because it is services, personal promisor a to render the for employment. Upon some of continued will, promisee burden of at the has the term or wages, employer promising the could a raise in establishing meets the crite- that the covenant obligation employee fire the and be under no by this code. specified Section 15.50 of ria perform promise. the (Vernon Supp.1994) § 15.51 & Com.Code TexBus. added). written, (b) has no (emphasis As meaning, "[otherwise cannot be an only promise illusory, because there one is a unilateral If formed; "obligate[s]” non-illusory agreement" a enforceable] the contract can still be offer, Describing something as an promi- promisor "at will.” promise the can serve as an by obligation nonsensical. illusory promise accept is the can sor who made supra performance. note at See Farnsworth, part: agreement provides pertinent 8. The employee example, suppose an 75-76. For UNITED AGREEMENT BETWEEN promises an trade not to disclose TELESPECTRUM, information, INC. AND SALESPERSON proprietary the and other if secrets day this 8th of Octo- gives employee specialized is entered employer such This the 198[7], TeleSpectrum, employee’s United training during ber and information the Inc., Light- merely sought employment. employee a If the promise perform employer, a from the such Salesperson parties agree will have illusory employer that promise the would be because pub- employee escape obligation primary contact the members could fire the the however, If, TeleSpectrum’s for accepts customers perform. employer lic who will be the services. For by performing, communications employee’s in other mobile radio the offer reason, by serviced training, the customers who are by providing a unilateral words the may Salesperson the service come to associate is now contract is created in which the they than with rather employee’s promise. id. at 76 receive the See bound him/her TeleSpectrum itself. non-illusory promise (describing as a dis- that, employ- offer). parties agree course of in the guised was not The ment, The fact that the acquire Salesperson confidential will perform fired because he could have bound to irrelevant; information that could dam- performed, customer-related if he has is TeleSpectrum to come into the age if it were accepted created offer and he has TeleSpectrum’s competition possession binding To form such a unilateral contract. however, contract, (1) performance the service area. unilateral bargained-for is not rendered be so that it must reasons, WHEREFORE, 50-59, consideration, (2) and in con- for these ac- past id. at see promises mutual recited of their ceptance by performance sideration herein, parties agree as follows: perform. a unilateral contract Such employ TeleSpectrum Sales- Light’s will Light 1. United as to existed between and United Kilgore, contract, Tyler, Longview, person Mar- in the compensation. But such unilateral any other service perfor- area or in of its accepted only by shall service areas, future since it could be mance, may agree upon in the as the support could not a covenant terminable at the This “otherwise future. as it was not an inasmuch illusory capable serving are not and thus fact could terminate the any way in no renders agreement.9 as consideration for Those ment her will her two promises illusory. an otherwise en- three are: United’s for United to train provide specialized training” ... “initial exchange Light’s giving days’ Light; Light’s promise provide Light’s notice to terminate days’ notice to United to terminate termination, inventory providing upon ex- ment; Light’s promise provide Light and isted between United.11 inventory property upon of all termi- resigned nation. Even if had or been II. executed,
fired after was required inquiry compelled by United would still have been The second section Similarly, training. the initial 15.50 is whether the covenant not to Salesperson TeleSpect- geographic will or United The referenced service area of either expansions rum. also includes future of its ser- TeleSpectrum agrees pay TeleSpectrum vice area which United im- 2. United Sales- sales, plement vicinity immediately salary pur- person surround- and commission for area, during present existing compensation service the time suant to the then sales salesperson employed plans. *5 TeleSpectrum. agrees provide TeleSpectrum 3. United to Salesperson agrees any 10. that violation Salesperson package employee of benefits paragraph of 6 policies him/her accordance with the set forth in manu- damage TeleSpectrum through 8 will United TeleSpectrum. als and directives of United TeleSpectrum and will entitle United to obtain TeleSpectrum agrees provide the 4. United to injunction against an and will entitle him/her salesperson on-going specialized initial and TeleSpectrum any United to and all other dam- training necessary to sell the mobile radio ages equity. law or or remedies available TeleSpectrum communications services United October, AGREED THIS 8th DAY OF 1987. offers. Salesperson Salesperson agrees provide 5. United TeleSpectrum days 14 notice terminate em- /s/ ployment. Telespectrum, United Inc. notice, agrees Upon Salesperson 6. such Barbara Pachter provide TeleSpectrum inventory an of /s/ TeleSpectrum property all United in his/her arrangements possession agrees to make promise Every other in the 9. regional manager to sales return his/her (i.e., promise employ and United property. paragraph. all such As used in this 1, promise pay salary paragraph and com- TeleSpectrum’s property includes all 2, paragraph provide missions in material, form, customer-related in whatever 3), package employee paragraph of benefits in is prepared by Salesperson or others. whether dependent upon illusoiy as each is some interval Salesperson agrees, upon termination of employment. of continued at-will TeleSpectrum, employment with United thereafter, for a of ONE YEAR he/she not, not, question 10. We need and do decide the directly indirectly compete with will not or provision precludes such a notice of whether TeleSpectrum Longview, Tyler, at-will, relationship being employment from Salesperson agrees Marshall service area. employment provision even if that created paragraph prohibits from ac- that this him/her Longview, Tyler, weeks, two the covenant at contract for a term of cepting employment in the agree- ancillary not be to such an issue would any Marshall service area from mobile com- accompanying footnote 15. ment. See text any agent provider, or munications service infra service reseller of a mobile communications any provider, salesperson, 8, as a or in other appeals of held that the October 11. The court salesperson capacity give 1987, that would cus- employment ... "written contract of permit contact or that would the use of existing employment tomer amended the at will oral the customer related information ac- agreement” and could suffice as the otherwise he/she quired agreement necessary in the course of for formation his/her enforceable TeleSpectrum. with United at 99. The October under 15.50. 841 S.W.2d prohibition Salesperson agrees “agreement” that 8 was not a contract of all; prohibits provided paragraph specifically re- stated in 7 above also it him/ agent any disap- acting independent We as an of at will. therefore her from mained prove appeals’ provider, agent hold- of this basis for the court mobile radio communications agreement ex- Longview, Tyler, ing Marshall that an otherwise or reseller in the Light and United. geographic isted between service area.
647
compete. DeSantis
the covenant
ancillary
of12 the otherwise
is
(Tex.
Legis-
682
agreement. Although
Corp.,
793 S.W.2d
Wackenhut
1990)
occupy the
generally sought
comment b of the
(citing
lature has
Re
statute,
goodwill-
it did not
noting
field with
that business
statement
assessing
or not a
standards for
whether
proprietary information
confidential or
ancillary
or a
interests).
is
such
examples
are
an otherwise enforceable
Therefore,
for a covenant not
in order
en
to an otherwise
to be
Sharp Electron-
In Business Electronics v.
employer and
agreement between
ics,
108 S.Ct.
99 L.Ed.2d
485 U.S.
employee:
(1988),
argued that a
Justice Stevens
to a contract unless
restraint
given
the consideration
obli
designed
it
to enforce a contractual
in the otherwise enforceable
er
parties.
of the
Id. at 739-741
gation of one
give
to the
interest
rise
744-46, 108
& n.
n.
at 1527-1529
&
S.Ct.
competing;
restraining the
(Stevens, J., dissenting). Respond
Court,
Justice Scalia
on behalf
noted,
designed to en-
among
things, that under the
the covenant must be
other
(Second)
or re-
force' the
consideration
CONTRACTS
Restatement
(the
§§
a le
Restatement),
turn
in the otherwise enforceable
gitimate
may be
to a
restraint
agreement.14
relationship,
and not necessar
transaction
test are satis-
both elements of the
Unless
Electronics,
ily
per
a contract
se. Business
fied,
ancillary to or a
the covenant cannot be
at 729 n.
Light and it unenforceable because
is not of the otherwise between them. As
we have found the covenant be unenforce-
able, judgment we reverse the of the court of
appeals and remand this cause to that court other, previously
for consideration of Centel’s
unaddressed, points of error.
DOGGETT, J., joins judgment only.
HIGHTOWER, Justice, concurring. join
I judgment the court’s in this cause. I that an at will
continue believe “relationship” “contract” agreement.” If
“an otherwise enforceable will,” is “at it not an
otherwise enforceable *7 SZCZEPANIK,
S. Richard al., Petitioners,
et COMPANY,
FIRST SOUTHERN TRUST
Respondent.
No. D-4546.
Supreme Court of Texas.
June
Harvey Joseph, Koepke, and A. G. John A. Gross, Dallas, petitioners. David Boone, Bond, Dallas, Monte M. Thomas K. respon- Higgins, Spring, for and June E. dents.