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A BILL TO BE ENTITLED
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AN ACT
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relating to the enforceability of covenants not to compete and to |
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certain procedures and remedies in actions to enforce those |
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covenants. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subchapter E, Chapter 15, Business & Commerce |
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Code, is amended to read as follows: |
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SUBCHAPTER E. COVENANTS NOT TO COMPETE |
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Sec. 15.50. SHORT TITLE. This subchapter may be cited as |
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the Texas Covenant Not to Compete Act. |
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Sec. 15.51. POLICY AND PURPOSE. It is the public policy of |
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this state and the purpose of this subchapter to: |
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(1) provide a stable, competitive business |
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environment for the citizens of this state; |
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(2) provide certainty and uniformity regarding the |
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enforceability of covenants not to compete; and |
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(3) encourage employers to share confidential, |
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proprietary information and other protectible business interests |
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with employees in furtherance of their common purpose, but to |
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prevent employers from taking unfair advantage of an employee and |
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impairing an employee's personal freedoms and economic mobility. |
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Sec. 15.52. DEFINITIONS. In this subchapter: |
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(1) "Covenant not to compete" or "covenant" means any |
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agreement, regardless of form, that restricts competition. The |
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term does not mean an agreement: |
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(A) not to disclose or use trade secrets or |
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confidential information of the promisee; |
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(B) not to solicit employees of the promisee; |
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(C) to resign or cease using staff or medical |
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privileges acquired with the assistance of the promisee; or |
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(D) not to cause a reduction of staff of the |
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promisee. |
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(2) "Physician" means a person licensed as a physician |
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by the Texas State Board of Medical Examiners. |
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Sec. 15.53. CRITERIA FOR ENFORCEABILITY OF COVENANTS NOT TO |
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COMPETE. (a) Notwithstanding Section 15.05 [of this code], and |
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subject to any applicable provision of Subsection (b) or (c), a |
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covenant not to compete is enforceable if it is [ancillary to or] |
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part of or supported by an otherwise enforceable agreement, but |
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only [at the time the agreement is made] to the extent that it |
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contains limitations as to time, geographical area, and scope of |
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activity to be restrained that are reasonable and do not impose a |
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greater restraint than is necessary to protect the goodwill or |
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other business interest of the promisee. |
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(b) In addition to the requirements of Subsection (a), a [A] |
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covenant not to compete or otherwise enforceable agreement is |
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enforceable against a person licensed as a physician by the Texas |
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State Board of Medical Examiners if such covenant or agreement |
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complies with the following requirements: |
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(1) the covenant not to compete or otherwise |
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enforceable agreement must provide the physician, upon request, |
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access to a list of patients whom the physician had seen or treated |
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within the last year of employment with the promisee [must:
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[(A) not deny the physician access to a list of
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his patients whom he had seen or treated within one year of
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termination of the contract or employment]; |
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(2) the covenant or agreement must [(B)] provide, upon |
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written authorization of the patient, access to medical records of |
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the physician's patients [upon authorization of the patient] and |
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any copies of medical records for a reasonable fee as established by |
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the Texas State Board of Medical Examiners under Section 159.008, |
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Occupations Code; and |
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[(C) provide that any access to a list of
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patients or to patients' medical records after termination of the
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contract or employment shall not require such list or records to be
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provided in a format different than that by which such records are
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maintained except by mutual consent of the parties to the contract;
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[(2) the covenant must provide for a buy out of the
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covenant by the physician at a reasonable price or, at the option of
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either party, as determined by a mutually agreed upon arbitrator
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or, in the case of an inability to agree, an arbitrator of the court
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whose decision shall be binding on the parties; and] |
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(3) the covenant or agreement must provide that the |
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physician will not be prohibited from providing continuing care and |
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treatment to a specific patient or patients during the course of an |
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acute illness even after the contract or employment has been |
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terminated. |
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(c) A covenant not to compete with a physician must provide |
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for a buyout of the covenant by the physician at a reasonable price |
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in light of the goodwill or other business interests of the promisee |
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that are sought to be protected by the covenant. The buyout price |
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must be provided for in the covenant by stating either an amount, a |
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formula by which the amount may be determined, or a stipulation that |
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the determination of the amount will be submitted to an arbitrator |
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whose decision shall be conclusive and binding on the parties and |
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the court and not subject to reformation as provided by Section |
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15.54 (c). |
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(d) Unless the covenant not to compete or the otherwise |
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enforceable agreement with a physician specifically designates the |
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format in which a patient list or patients' medical records will be |
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provided, the physician's access to a list of patients or to |
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patients' medical records after termination of the contract or |
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employment shall be provided in the format in which the records are |
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maintained. |
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Sec. 15.54 [15.51]. PROCEDURES AND REMEDIES IN ACTIONS TO |
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ENFORCE COVENANTS NOT TO COMPETE. (a) Except as provided in |
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Subsections [Subsection] (c) and (d) [of this section], a court may |
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award the promisee under a covenant not to compete damages, |
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injunctive relief, or both damages and injunctive relief for a |
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breach by the promisor of the covenant. |
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(b) If the primary purpose of the otherwise enforceable |
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agreement that supports the covenant, or of [to] which the covenant |
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is a part, [ancillary] is to obligate the promisor to render |
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personal services, for a term or at will, the promisee has the |
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burden of establishing that the covenant meets the criteria |
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specified by Section 15.53 [15.50 of this code]. If the agreement |
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has a different primary purpose, the promisor has the burden of |
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establishing that the covenant does not meet those criteria. For |
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the purposes of this subsection, the "burden of establishing" a |
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fact means the burden of persuading the triers of fact that the |
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existence of the fact is more probable than its nonexistence. |
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(c) If the covenant is found to be enforceable under Section |
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15.53 but, as written, contains limitations as to time, |
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geographical area, or scope of activity that are not reasonable or |
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imposes a greater restraint than is necessary in order to protect |
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the goodwill or other business interests of the promisee, the |
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promisee of the covenant may, in writing, unilaterally expressly |
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modify or amend the limitations as to time, geographical area, or |
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scope of activity to make them reasonable and not impose a greater |
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restraint than is necessary to protect the goodwill or other |
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business interest of the promisee and may seek to have the covenant |
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enforced as modified or amended. An election to modify or amend |
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shall automatically reduce the scope of the covenant to the |
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limitations sought to be enforced by the promisee and must be made |
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at or before the time any claim is made in a suit to enforce the |
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covenant. If a court enforces the covenant as modified or amended |
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and to the extent sought to be enforced by the promisee as to time, |
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geographical area, or scope of activity, the court may award the |
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promisee damages and injunctive relief. If the covenant is found to |
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be enforceable under Section 15.53 but the promisee of the covenant |
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seeks to enforce limitations as to time, geographical area, or |
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scope of activity that are not reasonable and impose a greater |
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restraint than is necessary to protect the goodwill or other |
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business interest of the promisee, the court shall reform the |
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covenant to the extent necessary to cause the limitations contained |
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in the covenant as to time, geographical area, and scope of activity |
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to be restrained so as to be reasonable and to impose a restraint |
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that is not greater than necessary to protect the goodwill or other |
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business interest of the promisee and shall enforce the covenant as |
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reformed. If the court reforms the covenant, the court may award |
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the promisee injunctive relief and damages for breach of the |
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covenant after it was reformed by the court or arbitrator but may |
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not award damages for a breach of the covenant before its |
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reformation. |
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(d) The final trial in any case involving the enforceability |
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of a covenant not to compete shall be held expeditiously and shall |
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take precedence over other matters, except criminal and family law |
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matters. A promisee of a covenant not to compete that is |
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enforceable under Section 15.53 shall be entitled to temporary |
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injunctive relief without the necessity of showing irreparable harm |
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or an inadequate remedy at law. A promisee of a covenant not to |
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compete shall be entitled to temporary injunctive relief during the |
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pendency of any suit if the final hearing is set more than six |
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months after the date of the original filing of the suit. |
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(e) A promisee of a covenant not to compete that is |
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enforceable under Section 15.53 shall be entitled to have the |
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period of the restrictions extended by the court for a period |
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equivalent to the period any breach of the covenant by the promisor. |
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(f) The party that prevails in a suit under this chapter |
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shall be awarded court costs and reasonable and necessary |
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attorney's fees, except that a promisee shall not be entitled to |
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court costs and attorney's fees if the covenant is reformed by a |
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court under Subsection (c) [ancillary to or part of an otherwise
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enforceable agreement but contains limitations as to time,
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geographical area, or scope of activity to be restrained that are
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not reasonable and impose a greater restraint than is necessary to
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protect the goodwill or other business interest of the promisee,
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the court shall reform the covenant to the extent necessary to cause
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the limitations contained in the covenant as to time, geographical
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area, and scope of activity to be restrained to be reasonable and to
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impose a restraint that is not greater than necessary to protect the
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goodwill or other business interest of the promisee and enforce the
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covenant as reformed, except that the court may not award the
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promisee damages for a breach of the covenant before its
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reformation and the relief granted to the promisee shall be limited
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to injunctive relief. If the primary purpose of the agreement to
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which the covenant is ancillary is to obligate the promisor to
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render personal services, the promisor establishes that the
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promisee knew at the time of the execution of the agreement that the
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covenant did not contain limitations as to time, geographical area,
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and scope of activity to be restrained that were reasonable and the
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limitations imposed a greater restraint than necessary to protect
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the goodwill or other business interest of the promisee, and the
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promisee sought to enforce the covenant to a greater extent than was
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necessary to protect the goodwill or other business interest of the
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promisee, the court may award the promisor the costs, including
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reasonable attorney's fees, actually and reasonably incurred by the
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promisor in defending the action to enforce the covenant]. |
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Sec. 15.55 [15.52]. PREEMPTION OF OTHER LAW. (a) The |
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criteria for enforceability of a covenant not to compete provided |
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by Section 15.53 [15.50 of this code] and the procedures and |
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remedies in an action to enforce a covenant not to compete provided |
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by Section 15.54 [15.51 of this code] are exclusive and preempt any |
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other criteria for enforceability of a covenant not to compete or |
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procedures and remedies in an action, regardless of form, to |
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determine the enforceability or to enforce a covenant not to |
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compete under common law or otherwise. |
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(b) If the primary purpose of the otherwise enforceable |
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agreement that supports the covenant or of which the covenant is a |
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part is to obligate the promisor to render personal services, for a |
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term or at will, and the covenant seeks to restrict the promisee |
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from competing in this state, any agreement that purports to select |
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or elect the laws of another jurisdiction to apply or govern in any |
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action to determine the enforceability of or to enforce a covenant |
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not to compete is void. |
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SECTION 2. The change in law made by this Act to Subchapter |
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E, Chapter 15, Business & Commerce Code, applies only to an action |
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to enforce a covenant not to compete filed on or after the effective |
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date of this Act. An action filed before the effective date of this |
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Act, including an action filed in which a party is joined or |
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designated after that date, is governed by the law in effect |
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immediately before the effective date of this Act, and the former |
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law is continued in effect for that purpose. |
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SECTION 3. This Act takes effect September 1, 2007. |