Light v. Centel Cellular Co. of Texas

• Citation: 883 S.W.2d 642
• Decision Date: 02 June 1994
• Docket Number: No. D-3262,D-3262
• Parties: 1994-2 Trade Cases P 70,750, 9 IER Cases 1531 Debbie LIGHT, Petitioner, v. CENTEL CELLULAR COMPANY OF TEXAS, Successor-in-Interest to United Telespectrum, Inc., Respondent.
• Court: Supreme Court of Texas

Page 642

883 S.W.2d 642

1994-2 Trade Cases P 70,750, 9 IER Cases 1531

Debbie LIGHT, Petitioner, v. CENTEL CELLULAR COMPANY OF TEXAS, Successor-in-Interest to

United Telespectrum, Inc., Respondent.

No. D-3262.

Supreme Court of Texas.

Argued Feb. 17, 1994.

Decided June 2, 1994.

Gregory P. Grajczyk, Bruce A. Smith, Longview, for petitioner.

James T. Womack, G.R. Akin, Longview, for respondent.

CORNYN, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, and GONZALEZ, HECHT, GAMMAGE, ENOCH and SPECTOR, Justices, join.

In this restraint of trade case, ¹ Debbie Light sued Centel Cellular Company of Texas (Centel), successor-in-interest to United TeleSpectrum, Inc. (United), claiming, among other things, that a covenant not to compete that she had signed was unenforceable and void. Light also sought damages from Centel for tortious interference with prospective contracts. The trial court rendered judgment that the covenant not to compete was unenforceable and that Light recover damages against Centel for her tortious interference claim. The court of appeals reversed and rendered judgment that Light take nothing against Centel, holding that the covenant was enforceable. 841 S.W.2d 95, 99-100.

Under sections 15.50 et seq. of the Texas Business and Commerce Code ("the Covenants Not to Compete Act"), which govern our resolution of this case, we hold that the covenant not to compete is unenforceable. Although Light and United did have an otherwise enforceable agreement between them, the covenant was not ancillary to or a part of that otherwise enforceable agreement. Accordingly, we reverse the judgment of the court of appeals and remand the case to that court for further proceedings consistent with this opinion.

In 1985, Light was hired by United to sell pagers. In 1987, United was granted a license to sell cellular mobile communications products and services in the Longview/Tyler/Marshall market area. In order to keep her job and before she was able to begin selling cellular products, Light was required to execute an agreement which included a covenant not to compete. After resigning in May of 1988, and after Centel, as the successor-in-interest to United, declined to voluntarily release Light from the covenant not to compete, Light sued Centel.

In 1989, responding to decisions from this court, the Legislature passed the Covenants Not to Compete Act, a bill adding sections 15.50 and 15.51 to the Texas Business and Commerce Code. ² Acts of June 16, 1989, ch. 1193, § 1 1989 Tex.Gen.Laws 4852 (effective Aug. 28, 1989). The 1989 amendments were themselves amended in 1993. Acts of May 13, 1993, ch. 965, § 1 1993 Tex.Gen.Laws 4201 (effective Sept. 1, 1993). Section 15.50 now provides:

§ 15.50. Criteria for Enforceability of Covenants not to Compete

Notwithstanding Section 15.05 [which generally declares restraints on competition unlawful] of this code, a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement 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.

TEX.BUS. & COM.CODE § 15.50 (Vernon Supp.1994). The 1993 amendments also added section 15.52, which provides that:

§ 15.52. Preemption of Other Law

The criteria for enforceability of a covenant not to compete provided by Section 15.50 of this code and the procedures and remedies in an action to enforce a covenant not to compete provided by Section 15.51 of this code are exclusive and preempt any other criteria for enforceability of a covenant not to compete or procedures and TEX.BUS. & COM.CODE § 15.52 (Vernon Supp.1994). Section 15.52 makes clear that the Legislature intended the Covenants Not to Compete Act to largely supplant the Texas common law relating to enforcement of covenants not to compete. Thus, we apply the Covenants Not to Compete Act to the facts of this case, in lieu of "any other criteria for enforceability of a covenant not to compete or procedures and remedies in an action to enforce a covenant not to compete under common law or otherwise." Before applying the Covenants Not to Compete Act, though, we must determine whether it applies to this particular restraint, which predates these amendments. Section 5 of the 1993 amendatory act provides that:

remedies in an action to enforce a covenant not to compete under common law or otherwise.

This Act applies to a covenant not to compete entered into before, on, or after the effective date of this Act unless the enforceability of the covenant has been finally adjudicated by a court of competent jurisdiction before the effective date [September 1, 1993] of this Act.

Acts of May 13, 1993, ch. 965, § 5 1993 Tex.Gen.Laws 4202 (effective Sept. 1, 1993). Thus, the Covenants Not to Compete Act applies retroactively to this case. ³

Section 15.50 provides two criteria for the enforceability of a covenant not to compete: the covenant must (1) be ancillary to or part of an otherwise enforceable agreement ⁴ at the time the agreement is made and (2) contain 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. The enforceability of a covenant not to compete, including the question of whether a covenant not to compete is a reasonable restraint of trade, is a question of law for the court. Martin v. Credit Protection Ass'n, Inc., 793 S.W.2d 667, 668-69 (Tex.1990).

We first determine under the terms of the statute whether the covenant not to compete in this case is ancillary to or a part of an otherwise enforceable agreement at the time the agreement is made. Section 15.50 requires us to make two initial inquiries as to formation of the covenant not to compete: (1) is there an otherwise enforceable agreement, to which (2) the covenant not to compete is ancillary to or a part of at the time the agreement is made.

I.

Although Light was an employee-at-will, and by definition, she and her employer could not have an "otherwise enforceable agreement" between them pertaining to, for example, the duration of her employment, at-will employment does not preclude the formation of other contracts between employer and employee. At-will employees may contract with their employers on any matter except those which would limit the ability of either employer or employee to terminate the employment at will. Consideration for a promise, by either the employee or the employer in an at-will employment, cannot be dependent on a period of continued employment. ⁵ In the "agreement" between Light and United, ⁸ there are only three promises that

⁵ Such a promise would be illusory because it fails to bind the promisor who always retains the option of discontinuing employment in lieu of performance. East Line & Red River R. Co. v. Scott, 72 Tex. 70, 10 S.W. 99, 102 (1888) (noting that in at-will employment, "it is no breach of contract to refuse to receive further services"). When illusory promises are all that support a purported bilateral contract, there is no contract. ⁶ In short, we hold that "otherwise enforceable agreements" can emanate from at-will employment so long as the consideration for any promise is not illusory. ⁷ This holding does not conflict with our recent decision in Travel Masters, Inc. v. Star Tours, Inc., 827 S.W.2d 830 (Tex.1992), because in that case there was no otherwise enforceable agreement between the parties and we similarly held that the at-will employment relationship alone could not constitute an otherwise enforceable agreement. Id. at 832-33 are not illusory and thus capable of serving as consideration for any agreement. ⁹ Those three promises are: (1) United's promise to provide "initial ... specialized training" to Light; (2) Light's promise to provide 14 days' notice to United to terminate employment; ¹⁰ (3) Light's promise to provide an inventory of all United property upon termination. Even if Light had resigned or been fired after this agreement was executed, United would still have been required to provide the initial training. Similarly, the fact that Light could terminate the employment at her will in no way renders her two promises illusory. Thus, an otherwise enforceable agreement for United to train Light in exchange for Light's giving 14 days' notice to terminate employment and Light's providing an inventory upon termination, existed between Light and United. ¹¹

II.

The second inquiry compelled by section 15.50 is whether the covenant not to compete In Business Electronics v. Sharp Electronics, 485 U.S. 717, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988), Justice Stevens argued that a restraint is not ancillary to a contract unless it is designed to enforce a contractual obligation of one of the parties. Id. at 739-741 & n. 3, 744-46, 108 S.Ct. at 1527-1529 & n. 3, 1528-29 (Stevens, J., dissenting). Responding on behalf of the Court, Justice Scalia noted, among other things, that under the RESTATEMENT (SECOND) OF CONTRACTS §§ 187, 188 (1981) (the RESTATEMENT), a legitimate restraint may be ancillary to a transaction or relationship, and not necessarily a contract per se. Business Electronics, 485 U.S. at 729 n. 3, 108 S.Ct. at 1522 n. 3. As our concern here is whether a covenant is ancillary to an "otherwise enforceable agreement, " instead of the broader language of the RESTATEMENT ¹³ we agree with Justice Stevens' statement of the standard in this context.

is ancillary to or part of ¹² the otherwise enforceable agreement. Although the Legislature has generally sought to occupy the field with this statute, it did not provide any standards for assessing whether or not a covenant not to compete is ancillary...