Houston’s Fourteenth Court of Appeals recently held that a claim for attorney’s fees under the Uniform Declaratory Judgments Act (“UDJA”) is not preempted by the Texas Covenants Not to Compete Act where the action brought under the UDJA seeks to declare a covenant not to compete unenforceable.
In Traina v. Hargrove & Associates Inc. a former employee filed suit against his former employer seeking a declaratory judgment that a covenant not to compete he entered into with his employer is unenforceable. The trial court granted summary judgment in favor of the employer that the employment agreement was enforceable, reformed the covenant to limit the scope of restrictions, and declined to award attorney’s fees under the UDJA. The trial court’s ruling stated that fees under the UDJA were preempted by the Covenants Not to Compete Act.
After affirming the trial court’s determination of the enforceability of the covenant, the court of appeals determined that since the employee’s UDJA claim sought to declare the covenant unenforceable, his claim for attorney’s fees was not preempted. The court noted: “The only claim brought in this case is Traina’s claim for a declaration that the covenant is unenforceable. Under such circumstances, this case does not qualify as “an action to enforce a covenant not to compete” under the plain meaning of the statute.” (emphasis own). The court concludes that since there was no claim to enforce the covenant not to compete, UDJA attorney’s fees are not preempted by section 15.52 of the Business and Commerce Code. The court remanded the proceedings to determine the issue of whether the former employee is entitled to attorney’s fees.
Generally, many employers find themselves going to court seeking to enforce a covenant not to compete against a former employee. When an employer seeks to enforce the covenant against a former employee, it may use the Covenants Not to Compete Act to secure enforcement of its covenant with the former employee. The Covenants Not to Compete Act provides that “the procedures and remedies in an action to enforce a covenant not to compete [under the Covenants Not to Compete Act] are exclusive and preempt 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.”
In Traina, the employee preemptively sued his former employer trying to have his covenant declared unenforceable instead of his former employer suing to enforce the covenant. The court of appeals recognized that the plain language of the statute only preempts actions seeking to enforce a covenant. Accordingly, the court determined that since the trial court concluded that consideration of any fees under the former employees UDJA claim was preempted, it remanded the case and required the trial court to determine whether the former employee was entitled to costs and necessary attorney’s fees.
This reminds employers that when entering a covenant not to compete with an employee, use reasonable restrictions as it relates to time, geography, and scope of activities. As a preemptive litigation avoidance practice, employers are well-advised to consult with appropriate employment counsel regarding the enforceability of its employee restrictive covenants. If an employer does find itself facing a lawsuit by a former employee seeking to declare a covenant not to compete unenforceable, the employer should remember that an award for costs and attorney’s fees under the UDJA is discretionary. So, having a reasonable and enforceable covenant not to compete in the first instance may protect an employer from potentially paying for its former employee’s costs and attorney’s fees.
The case may be cited as Traina v. Hargrove & Associates Inc., 14-19-00670-CV, 2021 WL 3161482 (Tex. App.—Houston [14th Dist.] July 27, 2021, no pet. h.).