One of the thorniest issues for employment lawyers for many years has been that of non-compete agreements. The courts are openly hostile to them on public policy grounds and review them very strictly. Their disdain for such agreements is only fueled by the fact that some companies use them as a tool to threaten and cajole good employees that have left for greener pastures, with full knowledge that the agreement won't ultimately hold up in court. This makes drafting an enforceable agreement for those companies that have a legitimate interest in protecting truly proprietary material all the more difficult. Unlike nearly any other kind of contract, an non-compete agreement (by statue) cannot stand alone and be enforced on its own merits. It must be attached or "ancillary to" an otherwise enforceable agreement. As the promise of continued at-will employment has been held to be insufficient consideration to support a non-compete agreement, companies more often than not attempt to tie the restriction to a promise on its part to provide the employee with confidential information. Thus, the employer promises to give confidential information, the employee promises to keep it confidential and the parties' non-compete clause is made ancillary to this agreement. In TMC Worldwide, L.P. v. Gray, (Tex.App. - Houston [1st Dist.] 05/26/2005), the Houston Court of Appeals weighs in on an issue that comes up more often than you might expect. What happens if the company promises to deliver confidential information...but never does. Or, as in this case, doesn't do so for many months after the parties enter into the agreement.
In TMC, the employer asserts that its promise to provide the employee with confidential information in return for his promise to keep the information confidential was non-illusory and thus was the basis of an "otherwise enforceable" contract that was ancillary to the covenant not to compete. However, the employee testified that he did not receive this confidential information until one year after he started working for the company. The trial court believed this testimony and made findings of fact consistent with his recollection of the events. Based on these facts, the appeals court held that a promise to provide confidential information is illusory and cannot be the basis of an "otherwise enforceable agreement" unless (1) the employer promises to deliver the confidential information to the employee and (2) the employer actually delivers the confidential information at or near the time the employee makes the promise to keep the information confidential. The court therefore held the non-compete to be unenforceable. Personally, while I agree with the court that it would be inappropriate to enforce a non-compete under such circumstances, I have some difficulty with the concept of how the failure to actually follow through on a promise renders that promise to be illusory in the first place.