Court-Reformed Non-Compete Agreements can Impose Serious Liability on Employers

A Texas employer trying to enforce a non-compete agreement learned the hard way that Texas Courts may reform the agreement to more reasonable terms and then award the employee his attorneys’ fees at the end of trial.  This is exactly what happened in Sentinel Integrity Solutions, Inc. v. Mistras Group, Inc

Jody Olsen, as an employee of Sentinel, executed a non-compete agreement that prevented him from performing for a competitor any duties encompassed by the role of a manager for Sentinel in locations in any one of seven different states, plus Trinidad and Tobago, for a period of three years.  During trial, it became evident that Sentinel had drafted the agreement to be overbroad, and was attempting to enforce the overbroad terms regardless.

After an initial jury award in Olsen’s favor, Sentinel moved to reform the agreement to more reasonable constraints. The trial court reformed the terms of the non-compete agreement, but also awarded Olson attorneys’ fees in the amount of $750,000 for fees incurred during litigation, plus conditional appellate fees, costs, and pre-judgment interest.  The appellate court affirmed the attorneys’ fees award in the full amount of $750,000, remanded for a determination of the actual fees incurred in defending the appeal, and struck the award of pre-judgment interest.

All-in-all, a hefty price to pay to reform the terms of the non-compete agreement from unreasonable to reasonable.  Employers should consider the time span, geographic location, and scope of duties protected under a non-compete agreement and ensure that each is reasonable at the time the agreement is executed.

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