In Non-Compete Litigation, the Temporary Injunction Hearing Effectively IS the Trial

New opinion out this month in which the Fifth Circuit makes clear that, in Texas, the temporary injunction hearing effectively IS the trial in a non-compete case. 

The case is Calhoun v. Jack Doheny Companies, Inc., No. 20-20068, — F.3d —, 2020 WL 4557641 (5th Cir. Aug. 7, 2020).

In Texas, employment non-compete agreements are governed by the Texas Covenants Not to Compete Act. Tex. Bus. & Com. Code § 15.50 et. seq. The Act states that if a non-compete covenant is found to be unreasonably overbroad, “the court shall reform the covenant to the extent necessary to cause” the covenant to be reasonable. See Tex. Bus. & Com. Code § 15.51(c).

In its decision, the Fifth Circuit rejected the argument that reformation on a non-compete is a remedy available only after a final trial, finding “[t]his argument runs against the clear majority practice of Texas courts, which have on many occasions reformed contracts for the purposes of granting interim relief.” Instead, the Court noted that under existing Texas case law, reformation may be made as incident to a grant of injunctive relief.

But the court then went on to essentially convert that “may” in the statute into a “shall if possible”. The Fifth Circuit held that the district court “should have decided whether and what reformation terms were most likely to make the agreement enforceable under Texas law,” The court remanded the case to allow the district court receive evidence and argument to effectuate this analysis at the preliminary injunction stage.

This case just serves to emphasize the importance of retaining a qualified attorney as early as possible in a non-compete dispute. The temporary injunction hearing comes fast — often within 2 weeks of service of the lawsuit. And as is made clear by the Fifth Circuit here, a decision as to whether the employee can continue to work a new job or will be barred from working due a non-compete is likely to be made at this initial hearing.