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Stock Purchase Agreement Sufficient to Permit Enforcement of Non-Compete

In Marsh USA Inc. v. Cook, 32 IER Cases 773 (Tex. 2011), the Texas Supreme Court analyzed whether a covenant not to solicit signed by an employee in consideration for stock options was enforceable as a matter of law under the Texas Covenants Not to Compete Act. Rex Cook had been employed by Marsh USA Inc. since 1983. In 1996, Cook was granted the option to purchase shares of common stock in the Company. In 2005, to exercise the stock options, Cook was required to sign a Non-Solicitation Agreement. The Agreement provided that if Cook left the Company within three years of exercising the options, then for two years Cook would not solicit any of the Company’s clients or employees. Cook resigned from the Company less than three years later, and began working for a competitor. The Company filed suit alleging that Cook had solicited and accepted business from clients of the Company. Under the Texas Act, to be enforceable, a restrictive covenant must be “ancillary to or part of” an otherwise enforceable agreement having a primary purpose that is unrelated to restraining competition between the parties. The court held that the non-solicitation agreement was ancillary to a valid contract—the option to purchase stock. Further, the court held that the stock options were reasonably related to the protection of the Company’s goodwill – a legitimate business interest. Accordingly, the court held the Agreement was unenforceable.