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Texas Court Addresses Restriction in Area Where Employer Planned to Compete

In Cobb v. Caye Publishing Group, Inc., 31 IER Cases 785 (Tex. App. 2010), the Texas Court of Appeals considered whether a non-competition provision in an employment agreement could restrict an employee from competing in a territory where the employee did not work while employed by his former employer and where the employer did not do business, but where it intended to expand at some point in the future. Caye Publishing publishes and distributes a “coupon based” magazine called Local Life in Johnson County in Texas. On May 1, 2008, Cobb was hired as an independent contractor to sell advertising for the magazine. Cobb signed a “Contractor Agreement” that contained a noncompete clause restricting Cobb from working for a competing third party or start a publication outside of Caye Publishing for a term of one year following the termination of the Agreement. Id. at 786. On September 23, 2009, Cobb resigned and in early November 2009, he began publishing and distributing a new magazine titled Who What Where in the cities of Aledo and Weatherford, which are located in nearby ParkerCounty. Caye Publishing sued and the trial court temporarily enjoined Cobb from starting a new publication or publishing his existing magazine in JohnsonCounty and in the cities of Aledo and Weatherford in Parker County.

In determining whether the noncompete provision was enforceable, the court of appeals first stated that a covenant not to compete with a broad geographical scope is unenforceable, “particularly when no evidence establishes that the employee actually worked in all areas covered by the covenant.” The court noted that this provision did not even contain a geographical limitation and held it was therefore “overbroad and unenforceable.” Id.at 787. However, in Texas, “the court shall reform the covenant to the extent necessary to cause the limitations to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill or other business interest of the promisee and enforce the covenant as reformed.” Id.

Caye Publishing argued that while it did not currently distribute in Parker County, it had made “more than a cursory inquiry” into publishing there, and that Cobb knew that it was researching expansion opportunities (though Cobb did not participate in this research). Id. at 788. However, the court of appeals held that Caye Publishing had not sold any advertising in ParkerCounty, cultivated any customer goodwill, or taken any action to start a publication in this area. Id. at 789. Accordingly, the court modified the geographical restriction to JohnsonCounty only and enforced the covenant not to compete to that extent.