By: Carona H.B. No. 7
73R631 LJD-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to covenants not to compete.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 15.50, Business & Commerce Code, is
1-5 amended to read as follows:
1-6 Sec. 15.50. Criteria for Enforceability of Covenants Not To
1-7 Compete. (a) Notwithstanding Section 15.05 of this code, a
1-8 covenant not to compete is enforceable to the extent that it:
1-9 (1) is ancillary to an otherwise valid transaction or
1-10 relationship <enforceable agreement> but, if the covenant not to
1-11 compete is executed on a date other than the date on which the
1-12 transaction occurs or the relationship begins <underlying agreement
1-13 is executed>, such covenant must be supported by independent
1-14 valuable consideration; and
1-15 (2) contains reasonable limitations as to time,
1-16 geographical area, and scope of activity to be restrained that do
1-17 not impose a greater restraint than is necessary to protect the
1-18 goodwill or other business interest of the promisee.
1-19 (b) For purposes of Subdivision (1) of Subsection (a) of
1-20 this section, continued employment or the promise of continued
1-21 employment, of definite or indefinite duration, constitutes
1-22 sufficient independent valuable consideration.
1-23 SECTION 2. Sections 15.51(b) and (c), Business & Commerce
1-24 Code, are amended to read as follows:
2-1 (b) If the primary purpose of the transaction or
2-2 relationship <agreement> to which the covenant is ancillary is to
2-3 obligate the promisor to render personal services, the promisee has
2-4 the burden of establishing that the covenant meets the criteria
2-5 specified by Subdivision (2) of Section 15.50(a) <15.50> of this
2-6 code. If the transaction or relationship <agreement> has a
2-7 different primary purpose, the promisor has the burden of
2-8 establishing that the covenant does not meet those criteria. For
2-9 the purposes of this subsection, the "burden of establishing" a
2-10 fact means the burden of persuading the triers of fact that the
2-11 existence of the fact is more probable than its nonexistence.
2-12 (c) If the covenant meets the criteria specified by
2-13 Subdivision (1) of Section 15.50(a) <15.50> of this code but does
2-14 not meet the criteria specified by Subdivision (2) of Section
2-15 15.50(a) <15.50>, the court, at the request of the promisee, shall
2-16 reform the covenant to the extent necessary to cause the covenant
2-17 to meet the criteria specified by Subdivision (2) of Section
2-18 15.50(a) <15.50> and enforce the covenant as reformed, except that
2-19 the court may not award the promisee damages for a breach of the
2-20 covenant before its reformation and the relief granted to the
2-21 promisee shall be limited to injunctive relief. If the primary
2-22 purpose of the transaction or relationship <agreement> to which the
2-23 covenant is ancillary is to obligate the promisor to render
2-24 personal services, the promisor establishes that the promisee knew
2-25 at the time of the execution of the covenant <agreement> that the
2-26 covenant did not meet the criteria specified by Subdivision (2) of
2-27 Section 15.50(a) <15.50> and the promisee sought to enforce the
3-1 covenant to a greater extent than was necessary to protect the
3-2 goodwill or other business interest of the promisee, the court may
3-3 award the promisor the costs, including reasonable attorney's fees,
3-4 actually and reasonably incurred by the promisor in defending the
3-5 action to enforce the covenant.
3-6 SECTION 3. This Act applies to a covenant entered into
3-7 before, on, or after the effective date of this Act.
3-8 SECTION 4. The importance of this legislation and the
3-9 crowded condition of the calendars in both houses create an
3-10 emergency and an imperative public necessity that the
3-11 constitutional rule requiring bills to be read on three several
3-12 days in each house be suspended, and this rule is hereby suspended,
3-13 and that this Act take effect and be in force from and after its
3-14 passage, and it is so enacted.