By Carona H.B. No. 7
Substitute the following for H.B. No. 7:
By Crabb C.S.H.B. No. 7
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the criteria for enforceability of covenants not to
1-3 compete and to certain procedures and remedies in actions to
1-4 enforce those covenants.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 15.50, Business & Commerce Code, is
1-7 amended to read as follows:
1-8 Sec. 15.50. Criteria for Enforceability of Covenants Not To
1-9 Compete. Notwithstanding Section 15.05 of this code, a covenant
1-10 not to compete is enforceable if it is ancillary to or part of an
1-11 otherwise enforceable agreement at the time the agreement is made
1-12 to the extent that it<:>
1-13 <(1) is ancillary to an otherwise enforceable
1-14 agreement but, if the covenant not to compete is executed on a date
1-15 other than the date on which the underlying agreement is executed,
1-16 such covenant must be supported by independent valuable
1-17 consideration; and>
1-18 <(2)> contains <reasonable> limitations as to time,
1-19 geographical area, and scope of activity to be restrained that are
1-20 reasonable and do not impose a greater restraint than is necessary
1-21 to protect the goodwill or other business interest of the promisee.
1-22 SECTION 2. Sections 15.51(b) and (c), Business & Commerce
1-23 Code, are amended to read as follows:
1-24 (b) If the primary purpose of the agreement to which the
2-1 covenant is ancillary is to obligate the promisor to render
2-2 personal services, for a term or at will, the promisee has the
2-3 burden of establishing that the covenant meets the criteria
2-4 specified by <Subdivision (2) of> Section 15.50 of this code. If
2-5 the agreement has a different primary purpose, the promisor has the
2-6 burden of establishing that the covenant does not meet those
2-7 criteria. For the purposes of this subsection, the "burden of
2-8 establishing" a fact means the burden of persuading the triers of
2-9 fact that the existence of the fact is more probable than its
2-10 nonexistence.
2-11 (c) If the covenant is found to be ancillary to or part of
2-12 an otherwise enforceable agreement but contains limitations as to
2-13 time, geographical area, or scope of activity to be restrained that
2-14 are not reasonable and impose a greater restraint than is necessary
2-15 to protect the goodwill or other business interest of the promisee
2-16 <meets the criteria specified by Subdivision (1) of Section 15.50
2-17 of this code but does not meet the criteria specified by
2-18 Subdivision (2) of Section 15.50>, the court<, at the request of
2-19 the promisee,> shall reform the covenant to the extent necessary to
2-20 cause the limitations contained in the covenant as to time,
2-21 geographical area, and scope of activity to be restrained to be
2-22 reasonable and to impose a restraint that is not greater than
2-23 necessary to protect the goodwill or other business interest of the
2-24 promisee <covenant to meet the criteria specified by Subdivision
2-25 (2) of Section 15.50> and enforce the covenant as reformed, except
2-26 that the court may not award the promisee damages for a breach of
2-27 the covenant before its reformation and the relief granted to the
3-1 promisee shall be limited to injunctive relief. If the primary
3-2 purpose of the agreement to which the covenant is ancillary is to
3-3 obligate the promisor to render personal services, the promisor
3-4 establishes that the promisee knew at the time of the execution of
3-5 the agreement that the covenant did not contain limitations as to
3-6 time, geographical area, and scope of activity to be restrained
3-7 that were reasonable and the limitations imposed a greater
3-8 restraint than <meet the criteria specified by Subdivision (2) of
3-9 Section 15.50 and the promisee sought to enforce the covenant to a
3-10 greater extent than was> necessary to protect the goodwill or other
3-11 business interest of the promisee, and the promisee sought to
3-12 enforce the covenant to a greater extent than was necessary to
3-13 protect the goodwill or other business interest of the promisee,
3-14 the court may award the promisor the costs, including reasonable
3-15 attorney's fees, actually and reasonably incurred by the promisor
3-16 in defending the action to enforce the covenant.
3-17 SECTION 3. Subchapter E, Chapter 15, Business & Commerce
3-18 Code, is amended by adding Section 15.52 to read as follows:
3-19 Sec. 15.52. PREEMPTION OF OTHER LAW. The criteria for
3-20 enforceability of a covenant not to compete provided by Section
3-21 15.50 of this code and the procedures and remedies in an action to
3-22 enforce a covenant not to compete provided by Section 15.51 of this
3-23 code are exclusive and preempt any other criteria for
3-24 enforceability of a covenant not to compete or procedures and
3-25 remedies in an action to enforce a covenant not to compete under
3-26 common law or otherwise.
3-27 SECTION 4. This Act takes effect September 1, 1993.
4-1 SECTION 5. This Act applies to a covenant not to compete
4-2 entered into before, on, or after the effective date of this Act
4-3 unless the enforceability of the covenant has been finally
4-4 adjudicated by a court of competent jurisdiction before the
4-5 effective date of this Act.
4-6 SECTION 6. The importance of this legislation and the
4-7 crowded condition of the calendars in both houses create an
4-8 emergency and an imperative public necessity that the
4-9 constitutional rule requiring bills to be read on three several
4-10 days in each house be suspended, and this rule is hereby suspended.