• Dallas Court of Appeals Holds Stock Options Insufficient Consideration to Enforce Non-Compete
  • June 26, 2009
  • Law Firm: Strasburger & Price, LLP - Dallas Office
  • The Dallas Court of Appeals recently reaffirmed and clarified the longstanding principle that financial benefits given to an employee do not give rise to an interest in restraining the employee from competing. In Marsh USA Inc. v. Cook, the employer sought to enforce a noncompete against its former employee on the basis that it had provided the employee with stock options in exchange for a covenant not to compete. The Court of Appeals affirmed summary judgment in favor of the employee, holding that the stock options offered by the employer did not “give rise” to the employer's interest in restraining the employee from competing. The Court held that the “give rise” requirement may be met only if the consideration given by the employer creates the interest in restraining competition. In other words, the interest in restraining competition must not exist before the consideration is given.  Whereas the disclosure of confidential information gives rise to a protectable interest that did not previously exist, the provision of financial benefits does not give rise to such an interest. Finding stock options to be financial benefits, the Court reasoned that the employer’s interest in restraining the employee from competing did not change or arise at the time that it transferred the stock to the employee.

    The Court’s opinion can be found at: http://www.5thcoa.courts.state.tx.us/cgi-bin/as_web.exe?c05topin.ask+D+261962.