81R14085 DAK-D
By: Uresti S.B. No. 2441
A BILL TO BE ENTITLED
AN ACT
relating to the enforceability of covenants not to compete and to
certain procedures and remedies in actions to enforce those
covenants.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter E, Chapter 15, Business & Commerce
Code, is amended to read as follows:
SUBCHAPTER E. COVENANTS NOT TO COMPETE
Sec. 15.50. SHORT TITLE. This subchapter may be cited as
the Texas Covenant Not to Compete Act.
Sec. 15.51. POLICY AND PURPOSE. It is the public policy of
this state and the purpose of this subchapter to:
(1) provide a stable, competitive business
environment for the residents of this state;
(2) provide certainty and uniformity regarding the
enforceability of covenants not to compete; and
(3) encourage employers to share confidential,
proprietary information and other protectable business interests
with employees in furtherance of their common purpose, but to
prevent employers from taking unfair advantage of an employee and
impairing an employee's personal freedoms and economic mobility.
Sec. 15.52. DEFINITIONS. In this subchapter:
(1) "Covenant not to compete" or "covenant" means any
agreement, regardless of form, that restricts competition. The
term does not mean an agreement:
(A) not to disclose or use trade secrets or
confidential information of the promisee;
(B) not to solicit employees of the promisee;
(C) to resign or cease using staff or medical
privileges acquired with the assistance of the promisee; or
(D) not to cause a reduction of staff of the
promisee.
(2) "Physician" means a person licensed as a physician
by the Texas Medical Board.
Sec. 15.53. CRITERIA FOR ENFORCEABILITY OF COVENANTS NOT TO
COMPETE. (a) Notwithstanding Section 15.05 [of this code], and
subject to any applicable provision of Subsection (b) or (c), a
covenant not to compete is enforceable if it is [ancillary to or]
part of or supported by an otherwise enforceable agreement only [at
the time the agreement is made] to the extent that it contains
limitations as to time, geographical area, and scope of activity to
be restrained that are reasonable and do not impose a greater
restraint than is necessary to protect the goodwill or other
business interest of the promisee.
(b) In addition to the requirements of Subsection (a), a [A]
covenant not to compete or otherwise enforceable agreement is
enforceable against a [person licensed as a] physician [by the
Texas State Board of Medical Examiners] if such covenant or
agreement complies with the following requirements:
(1) the covenant or agreement must provide [:
[(A) not deny] the physician, on request, access
to a list of [his] patients whom the physician [he] had seen or
treated within the last [one] year of [termination of the contract
or] employment with the promisee;
(2) the covenant or agreement must [(B)] provide, on
written authorization of the patient, access to medical records of
the physician's patients [upon authorization of the patient] and
any copies of medical records for a reasonable fee as established by
the Texas Medical Board [State Board of Medical Examiners] under
Section 159.008, Occupations Code; and
[(C) provide that any access to a list of
patients or to patients' medical records after termination of the
contract or employment shall not require such list or records to be
provided in a format different than that by which such records are
maintained except by mutual consent of the parties to the contract;
[(2) the covenant must provide for a buy out of the
covenant by the physician at a reasonable price or, at the option of
either party, as determined by a mutually agreed upon arbitrator
or, in the case of an inability to agree, an arbitrator of the court
whose decision shall be binding on the parties; and]
(3) the covenant or agreement must provide that the
physician will not be prohibited from providing continuing care and
treatment to a specific patient or patients during the course of an
acute illness even after the contract or employment has been
terminated.
(c) A covenant not to compete with a physician must provide
for a buyout of the covenant by the physician at a reasonable price
in light of the goodwill or other business interests of the promisee
that are sought to be protected by the covenant. The buyout price
must be provided for in the covenant by stating either an amount, a
formula by which the amount may be determined, or a stipulation that
the determination of the amount will be submitted to an arbitrator
whose decision is conclusive and binding on the parties and the
court and not subject to reformation as provided by Section
15.54(c).
(d) Unless the covenant not to compete or the otherwise
enforceable agreement with a physician specifically designates the
format in which a patient list or patients' medical records will be
provided, the physician's access to a list of patients or to
patients' medical records after termination of the contract or
employment shall be provided in the format in which the records are
maintained.
Sec. 15.54 [15.51]. PROCEDURES AND REMEDIES IN ACTIONS TO
ENFORCE COVENANTS NOT TO COMPETE. (a) Except as provided by
Subsections [in Subsection] (c) and (d) [of this section], a court
may award the promisee under a covenant not to compete damages,
injunctive relief, or both damages and injunctive relief for a
breach by the promisor of the covenant.
(b) If the primary purpose of the otherwise enforceable
agreement that supports the covenant, or of [to] which the covenant
is a part, [ancillary] is to obligate the promisor to render
personal services, for a term or at will, the promisee has the
burden of establishing that the covenant meets the criteria
specified by Section 15.53 [15.50 of this code]. If the agreement
has a different primary purpose, the promisor has the burden of
establishing that the covenant does not meet those criteria. For
the purposes of this subsection, the "burden of establishing" a
fact means the burden of persuading the triers of fact that the
existence of the fact is more probable than its nonexistence.
(c) If the covenant is found to be [ancillary to or part of
an otherwise] enforceable under Section 15.53 [agreement] but, as
written, contains limitations as to time, geographical area, or
scope of activity [to be restrained] that are not reasonable or
[and] impose a greater restraint than is necessary to protect the
goodwill or other business interest of the promisee, the promisee
of the covenant may, in writing, unilaterally expressly modify or
amend the limitations as to time, geographical area, or scope of
activity to make them reasonable and not impose a greater restraint
than is necessary to protect the goodwill or other business
interest of the promisee and may seek to have the covenant enforced
as modified or amended. An election to modify or amend
automatically reduces the scope of the covenant to the limitations
sought to be enforced by the promisee and must be made at or before
the time any claim is made in a suit to enforce the covenant. If a
court enforces the covenant as modified or amended and to the extent
sought to be enforced by the promisee as to time, geographical area,
or scope of activity, the court may award the promisee damages and
injunctive relief. If the covenant is found to be enforceable under
Section 15.53 but the promisee of the covenant seeks to enforce
limitations as to time, geographical area, or scope of activity
that are not reasonable and impose a greater restraint than is
necessary to protect the goodwill or other business interest of the
promisee, the court shall reform the covenant to the extent
necessary to cause the limitations contained in the covenant as to
time, geographical area, and scope of activity to be restrained so
as 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 shall enforce the covenant as reformed. If the
court reforms the covenant, [except that] the court may award the
promisee injunctive relief and damages for breach of the covenant
after it was reformed by the court or arbitrator but may not award
[the promisee] damages for a breach of the covenant before its
reformation [and the relief granted to the promisee shall be
limited to injunctive relief].
(d) The final trial in any case involving the enforceability
of a covenant not to compete shall be held expeditiously and shall
take precedence over other matters, except criminal and family law
matters. A promisee of a covenant not to compete that is
enforceable under Section 15.53 is entitled to temporary injunctive
relief without the necessity of showing irreparable harm or an
inadequate remedy at law. A promisee of a covenant not to compete
is entitled to temporary injunctive relief during the pendency of
any suit if the final hearing is set later than six months after the
date the original suit is filed.
(e) A promisee of a covenant not to compete that is
enforceable under Section 15.53 is entitled to have the period of
the restrictions extended by the court for a period equivalent to
the period of any breach of the covenant by the promisor.
(f) A court shall award a party that prevails in a suit under
this chapter [If the primary purpose of the agreement to which the
covenant is ancillary is to obligate the promisor to render
personal services, the promisor establishes that the promisee knew
at the time of the execution of the agreement that the covenant did
not contain limitations as to time, geographical area, and scope of
activity to be restrained that were reasonable and the limitations
imposed a greater restraint than necessary to protect the goodwill
or other business interest of the promisee, and the promisee sought
to enforce the covenant to a greater extent than was necessary to
protect the goodwill or other business interest of the promisee,
the] court [may award the promisor the] costs and [, including]
reasonable and necessary attorney's fees, except that a promisee is
not entitled to court costs and attorney's fees if [actually and
reasonably incurred by the promisor in defending the action to
enforce] the covenant is reformed by a court under Subsection (c).
Sec. 15.55 [15.52]. PREEMPTION OF OTHER LAW. (a) The
criteria for enforceability of a covenant not to compete provided
by Section 15.53 [15.50 of this code] and the procedures and
remedies in an action to enforce a covenant not to compete provided
by Section 15.54 [15.51 of this code] are exclusive and preempt any
other criteria for enforceability of a covenant not to compete or
procedures and remedies in an action, regardless of form, to
determine the enforceability or to enforce a covenant not to
compete under common law or otherwise.
(b) If the primary purpose of the otherwise enforceable
agreement that supports the covenant or of which the covenant is a
part is to obligate the promisor to render personal services, for a
term or at will, and the covenant seeks to restrict the promisee
from competing in this state, any agreement that purports to select
or elect the laws of another jurisdiction to apply or govern in any
action to determine the enforceability of or to enforce a covenant
not to compete is void.
SECTION 2. The change in law made by this Act to Subchapter
E, Chapter 15, Business & Commerce Code, applies only to an action
to enforce a covenant not to compete filed on or after the effective
date of this Act. An action filed before the effective date of this
Act, including an action filed in which a party is joined or
designated after that date, is governed by the law in effect
immediately before the effective date of this Act, and the former
law is continued in effect for that purpose.
SECTION 3. This Act takes effect September 1, 2009.