MARSH USA INC. AND MARSH & MCLENNAN COMPANIES, INC. v. REX COOK (Concurring)

SUPREME COURT CASES

Laws-info.com » Cases » Texas » Supreme Court » 2011 » MARSH USA INC. AND MARSH & MCLENNAN COMPANIES, INC. v. REX COOK (Concurring)

State: Texas

Court: Supreme Court

Docket No: 09-0558

Case Date: 06/24/2011

Judge: Don R. Willett

Plaintiff: MARSH USA INC. AND MARSH & MCLENNAN COMPANIES, INC.

Defendant: REX COOK (Concurring)

Preview:MARSH USA INC. AND MARSH & MCLENNAN
COMPANIES, INC. v. REX COOK (Concurring)
MAJORITY | CONCURRING | DISSENTING
IN THE SUPREME COURT OF TEXAS
No. 09-0558
Marsh USA Inc. and Marsh & McLennan Companies, Inc.,
Petitioners,
v.
Rex Cook, Respondent
On Petition for Review from the
Court of Appeals for the Fifth District of Texas
Argued September 16, 2010
Justice Willett, concurring in the judgment only.
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I agree the trial court should take first crack at assessing whether today's noncompetition covenant "contains
limitations as to time, geographical area, and scope of activity . . . that are reasonable and do not impose a greater
restraint than is necessary."1 That inquiryessentially, "Are the restrictions too restrictive?"received scant attention
below, rendering the record before us underdeveloped. The affidavit submitted by Marsh USA (Marsh) asserts that the
stock-incentive plan aimed to boost goodwill by giving Cook a stake in Marsh's long-term success.2 Growing goodwill
is all well and good, but the affidavit then says this: The noncompete "prevents employees from using that
goodwill . . . to attract the customer to a competitor." On the surface, this seems just another way of saying the
noncompete's purpose is to stifle competition, but perhaps a fuller record on remand will paint a less protectionist
picture.
So I agree to remand, but I write separately to underscore this admittedly obvious point: Restrictions on
employee mobility that exist only to squelch competition are per se illegal in Texas, and for good reason. Economic
dynamism in the 21st century requires speed, knowledge, and innovationimperatives that must inform judicial review
of efforts to sideline skilled talent.3 Courts must critically examine noncompetes in light of our contemporary,
knowledge-based economy that prizes ingenuity and intellectual talent. This much is clear: Courts cannot countenance
covenants too contemptuous of competition.
Amid increasing labor fluidity, there is no shortage of debate surrounding the propriety of enforcing restrictive
covenants that tie up skills, knowledge, ideas, and expertise. The fault line runs between first principlesfreedom of
contract versus freedom of competitionand judicial treatment of noncompetes has been, well, eclectic.4 Some
jurisdictions favor freedom of contract (enforcing a noncompete because the employee signed it) and fret little about
whether the company's interest is legitimate;5 other jurisdictions (most notably, California) champion freedom of
competition and void virtually all noncompetes;6 Texas courts, like most, enforce "reasonable" ones necessary to
protect legitimate interests.7 This multiplicity of standards across statesdubbed "fifty ways to leave your
employer"8makes for an unsteady legal landscape, particularly for far-flung employers that operate throughout the
country.
Today's case, like many before it, involves a familiar tension between company and employee, both intent on
self-protection. The interest Marsh aims to protect, though, is less familiar. Marsh does not argue that the noncompete
was needed here to protect costly investments in specialized training or to ensure its trade secrets or other confidential
information9 do not wind up on WikiLeaks.10 Marsh speaks of safeguarding its goodwill, and that is a protectable
interest. But uttering the word goodwill is not enough; magic words do not boast auto-enforceability. Marsh must
demonstrate that it is not invoking goodwill to camouflage a less noble interest: escaping future competition from
Cook.11
As the trial court begins its examination, I add these two points:
First, while goodwill is a protectable interest, protectionismgoing too far to protect what may be protectableis
verboten. Texas courts must probe noncompete covenants in that pro-free-market spirit. The Free Enterprise and
Antitrust Act declares the public policy of Texas: "Every contract, combination, or conspiracy in restraint of trade or
commerce is unlawful."12 The Act's paramount purpose "is to maintain and promote economic competition in trade
and commerce . . . and to provide the benefits of that competition to consumers in the state."13
One obvious exception is the Covenants Not to Compete Act,14 which permits a noncompete clause, but only
"to the extent 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."15 This exception is just thatan exceptionwith the rule favoring robust competition.
As for who decides whether limitations (1) are reasonable, (2) are more severe than necessary, and (3) relate to
a legitimate business interest, the Covenants Not to Compete Act expressly vests that duty with courts.16 Judges must
divine when competition becomes unfair competition and when a restraint becomes an unreasonable or unnecessarily
restrictive restraint. To be sure, the standard has a certain eye-of-the-beholder flavora vagueness that inexorably
produces the case-by-case unpredictability that haunts this area of employment law.17
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Alongside "reasonableness," the statute also requires that the agreement "not impose a greater restraint than is
necessary."18 We have never squarely addressed whether the Act envisions two separate inquiries: (1) that the
time/geography/scope limitations be "reasonable," and also (2) that the restraint not reach beyond that which is
"necessary" to protect the company's protectable interests. The latter suggests more exacting scrutiny than mere
"reasonableness." The Act separates the latter from the former with the conjunction "and," suggesting separateness,
while the pre-1993 version of the Act fused the two explicitly.19 None of our cases declare whether "reasonable" and
"necessary" are two separate inquiries or whether the latter is simply blended into the former. Many courts implicitly
subsume everything under an overarching banner of reasonableness,20 while others treat them as separate prongs.21
Either way, it is not an issue we reach today.
So while Texas law allows limited noncompetes, it does not allow protectionism to trump individual or societal
interests in a dynamic marketplace. And even assuming a company is trying to guard a bona fide business interest,
Texas courts must strike down restrictions that are unreasonable or more severe than necessary.
The underpinnings of this principle long predate Texas (or America) and draw from the recognition that
bustling markets best spur and reward ingenuity.22 The Lone Star State lauds economic dynamism. And while it is
perhaps natural for a profit-maximizing company to bend toward collusive or monopolistic restriction,23 Texas law is
hostile to such noncompetitive impulses. Nor can it be doubted that some companies try to tilt the playing field via
dubious noncompete covenants, even facially unenforceable ones, knowing that even the specter of enforcement action
will chill employees (and their potential employers) into preemptive capitulation.24
Given this firm foundation, courts' broad discretion in scrutinizing noncompetes, and the Legislature's clearly
stated opposition to contracts that unduly restrain competition, I would underscore that a noncompete rooted in
protectionism alone is per se invalid under the Covenants Not to Compete Act and surely offends the Act's purpose of
giving Texans the benefits of competition that is fierce yet also fair. Restraint of trade for its own sake is not a
protectable "business interest" under Section 15.50, any more than violations of employee wage, hour, or safety laws
are legitimate business interests that can be protected through a restrictive covenant.
More to the point, while "goodwill" is a bona fide business interest under the Act, it is not enough merely to
mutter the word. You cannot simply buy a covenant not to compete. A court cannot uphold a noncompete on goodwill
grounds absent a record that demonstrates the limitations are reasonable and as nonburdensome as possible. Every
company has customer relationships and attendant goodwill it wants to cultivate by incentivizing employees to stay,
but merely asserting goodwill is not enough. Marsh contends "Cook could take the customer relationships grown as a
result of the stock incentive and use them to compete with Marsh,"25 but that unadorned assertion is insufficient. And
even assuming the incentive spurred Cook to grow Marsh's goodwill (which strikes me as a curious and slippery
proposition), does that prove too much, lest any workplace benefita bonus, a raise, a promotion, a better parking
spacesuffice to justify a noncompete because it theoretically motivates an employee to strengthen client relationships?
The evidentiary record must demonstrate special circumstances beyond the bruises of ordinary competition such that,
absent the covenant, Cook would possess a grossly unfair competitive advantage. And even then the restrictions
imposed must be as light as possible and not restrict Cook's mobility to an extent greater than Marsh's legitimate need.
Second, naked restraints of trade are particularly onerous because, besides stifling beneficial competition, they
also meddle with people's right to earn an honest living. Sixty-five years ago, we declared the right to use one's "own
labor in any lawful employment . . . one of the first and highest of civil rights."26 The right to pursue a chosen
occupation and career path is indeed highly cherished, but it is also highly vulnerable. For many people, their
livelihood is inextricably tied to a certain pursuit of happiness, and losing this liberty should never be lightly regarded.
Fittingly, courts have recognized a right to work of constitutional dimension, at least in cases where state action was
alleged. Nearly a century ago, the United States Supreme Court explained that "the right to work for a living in the
common occupations of the community is of the very essence of the personal freedom and opportunity that it was the
purpose of the [Fourteenth] Amendment to secure."27 The Court made a similar point around that time in a case
arising from Texas:
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In so far as a man is deprived of the right to labor, his liberty is restricted, his capacity to earn wages and acquire
property is lessened, and he is denied the protection which the law affords those who are permitted to work. Liberty
means more than freedom from servitude, and the constitutional guaranty is an assurance that the citizen shall be
protected in the right to use his powers of mind and body in any lawful calling.28
Such eloquence has spanned centuries. Saint Thomas Aquinas addressed the connection between work and
existence itself: "[I]t is natural to a man to love his own work (thus it is to be observed that poets love their own
poems); and the reason is that we love to be and to live, and these are made manifest especially in our action."29
Ralph Waldo Emerson, typically transcendentalist, called it "the high prize of life, the crowning fortune of a
man . . . to be born with a bias to some pursuit, which finds him in employment and happiness,whether it be to make
baskets, or broadswords, or canals, or statues, or songs."30 Voltaire took the utilitarian, albeit narrow, view: "[O]ur
labour keeps off from us three great evils," he said, "idleness, vice, and want."31 We would be unwise not to linger
where a priest, a poet, and a polemicist all miraculously agree. Where the judiciary is empowered to pass upon a
subject that so viscerally affects the citizenry, it should do so with utmost care. Sometimes that care will demand a
painstaking weighing of interests. In other moments, it will demand that certain constraintsthose that restrict the right
to work for no better reason than to erase the competition a company sought by entering the marketplacebe declared
categorically void. In all cases, it requires chary judges who respect our law's rootedness in economic liberty and
vitality.
This is doubly true in times of economic hardship. President Franklin Roosevelt's first inaugural address is
largely remembered for the iconic phrase, "the only thing we have to fear is fear itself"32a potent sound bite that is
often removed from the crucial context that surrounded it. The fear President Roosevelt spoke about in 1933 sprang
largely from the financial crater left by the Great Crash of 1929 and the agonizing Great Depression that followed. The
Depression's devastating effects prompted the new president to couple his discussion of fear with an emphasis on the
salve to that fear: the importance of "[t]he joy and moral stimulation of work."33 It was the processthe act of
committing oneselfthat mattered. "Happiness lies not in the mere possession of money," he explained, "it lies in the
joy of achievement, in the thrill of creative effort."34 The virtue of work is no less fundamental today. Companies
must tread lightly when undertaking to curb that liberty. And if employers pass uncalled-for limits, we call on judges
to pass upon them.
The "true beginning of the modern law"35 on post-employment restraints is Mitchel v. Reynolds,36 a 1711
English-court decision that stood as the most cited case on the subject for two-and-a-half centuries.37 While
introducing the so-called "rule of reason" for evaluating such agreementswhether a legitimate economic or business
purpose justified the restriction38Mitchel expressed concern that such agreements were subject to "great
abuses . . . from masters, who are apt to give their apprentices much vexation on this account, and to use many indirect
practices to procure such bonds from them, lest they should prejudice them in their custom, when they come up to set
up for themselves."39 Though the contours of noncompete doctrine have changed as the American economy has
changed, this astute observation merits remembering. The "vexation" feared in 1711 is no less real 300 years later. In
2011, overbroad restrictions can strain the gears of an economic engine that has propelled this country so well, and so
far. In 2011, terms too severe to be enforced can also escape challenge altogether, instead acting in terrorem to freeze
an untold number of employees in place rather than allowing human capital to find its highest and best use and thus
augment economic and technological growth.40 This seems especially notable in today's era of dizzying technological
change, when implicit lifetime tenure is obsolete and frequent job-hopping is ordinary (unless someone has been
forced to sign away his or her right to compete).41
Restrictive covenants are not costless, and even a mutually acceptable noncompete can impose a deadweight
loss on broader society. Courts should not confuse a noncompete's impact on the employee with its impact on
competition. A restraint may be perfectly agreeable to both parties today but still harm consumers tomorrow.
Moreover, as our economy becomes even more technologically advanced and knowledge-based (key contributors to a
so-called high-velocity labor market), overreaching restrictions lock up human capital and decelerate the beneficial
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knowledge spillover that accrues from greater mobility. It remains the job of courts to be vigilant for practices that tend
to servility, that deprive the public of desired services, and that quash rivals via forced restriction rather than forceful
competition.42
I recognize that a free market is not innately utopian, with frictionless edges that never need sanding. "If men
were angels, no government would be necessary,"43 much less antitrust laws to curb monopolistic impulses. Under
Texas law, we must dutifully enforce noncompetes that impose reasonable limitations that are no more restrictive than
necessary in order to advance legitimate business interests. But this duty requires circumspection, lest the "Covenants
Not to Compete Act" exception swallow the "Free Enterprise and Antitrust Act" rule. The latter sides with the virtues
of economic libertythe basic right to pursue what you choose, where you choose, and among whom you choosenot the
vice of unduly denying skilled people the rewards of their earned success or injuring society by depriving the wider
public of someone's talents and enterprise. So while free enterprise recognizesdemands, actuallythat economic actors
will doggedly pursue self-interest, Texas noncompete law recognizes the difference between constructive self-interest
and destructive selfishness. Where a naked restraint of trade masquerades as a covenant not to compete, we must strike
it downalways.
Summing up: Post-employment restrictions are restraints on trade and, as such, deserve rigorous legal scrutiny,
particularly given today's pace of warp-speed economic change. Noncompetes tailored to protectable business interests
have their lawful place, but they should be used sparingly and drafted narrowly. And employers must demonstrate
special facts that legitimize the noncompete agreement. Squelching competition for its own sake is an interest
unworthy of protection. Competition by a former employee may well rile an employer, but companies do not have free
rein to, by contract, indenture an employee or dampen everyday competition that benefits Texas and Texans.
Don R. Willett
Justice
OPINION DELIVERED: June 24, 2011
1 Tex. Bus. & Com. Code § 15.50(a).
2 Though styled a "Non-Solicitation Agreement," the agreement also operates as a kitchen-sink noncompetition
agreement. Besides stating Cook may not "solicit" business from Marsh's clients or prospects, it also says Cook may
not "accept," "perform," or "supervise" business involving them.
3 The efficacy of restrictions on employee mobility is a matter of spirited debate among economists, lawyers, and legal
scholars. A growing body of nascent scholarship contends that overbroad noncompete agreements actually harm
innovation rather than foster it when they irrationally impede job-hopping. See, e.g., Norman D. Bishara, Covenants
Not to Compete in a Knowledge Economy: Balancing Innovation From Employee Mobility Against Legal Protection
for Human Capital Investment, 27 Berkeley J. Emp. & Lab. L. 287, 30607 (2006) [hereinafter "Bishara, Covenants Not
to Compete in a Knowledge Economy"]; Ronald J. Gilson, The Legal Infrastructure of High Technology Industrial
Districts: Silicon Valley, Route 128, and Covenants Not to Compete, 74 N.Y.U. L. Rev. 575, 594619 (1999); Charles
Tait Graves and James A. DiBoise, Do Strict Trade Secret and Non-Competition Laws Obstruct Innovation?, 1
Entrepreneurial Bus. L. J. 323, 323 (2006) [hereinafter "Graves and DiBoise, Strict Trade Secret and Non-Competition
Laws"]; Alan Hyde, Should Noncompetes Be Enforced?, Regulation (Cato Inst.), Winter 201011, at 6; Alan Hyde, The
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Wealth of Shared Information: Silicon Valley's High-Velocity Labor Market, Endogenous Economic
fs20softlineGrowth, and the Law of Trade Secrets (Sept. 1998),
http://andromeda.rutgers.edu/~hyde/WEALTH.htm.http://andromeda.rutgers.edu/~hyde/wealth;
4 As noted in 1960and this persists a half-century latercourt precedent "has reflected the evolution of industrial
technology and business methods, as well as the ebb and flow of such social values as freedom of contract, personal
economic freedom, and business ethics. But the fundamental interests which come into conflict have not basically
changed." Harlan M. Blake, Employee Agreements Not To Compete, 73 Harv. L. Rev. 625, 62627 (1960) [hereinafter
"Blake, Employee Agreements"].
5 See Brandon S. Long, Protecting Employer Investment in Training: Noncompetes vs. Repayment Agreements, 54
Duke L.J. 1295, 130203 (2005) ("For instance, some courts have found that freedom of contract principles support
enforcing all contracts made between competent parties, so long as those contracts are neither illegal nor
unconscionable.") (footnote omitted).
6 Cal. Bus. & Prof. Code § 16600; Viva R. Moffat, The Wrong Tool for the Job: The IP Problem With
Noncompetition Agreements, 52 Wm. & Mary L. Rev. 873, 877 n.5 (2010) [hereinafter "Moffat, The Wrong Tool"].
7 Moffat, The Wrong Tool, at 880.
8 Bishara, Covenants Not to Compete in a Knowledge Economy, at 317.
9 The mere fact that the noncompete prohibited Cook from disclosing trade secrets or confidential or proprietary
information is immaterial given the absence of anything in the record showing that Cook ever received such
information. See Plaintiffs' Resp. to Defendant's Mot. Summ. J. at 18 ("Cook's reliance on Sheshunoff is particularly
misplaced. Sheshunoff involved confidential information, not stock.") (citation omitted); Pet. Br. at 11 n.10
("[C]onfidential information was not at issue."); Transcript of Oral Argument at 2, Marsh USA Inc. v. Cook, __
S.W.3d __ (2011) (No. 09-0558) ("This is a not a confidential information case . . .                                        ."). As we explained in Alex
Sheshunoff Mgmt. Servs., L.P. v. Johnson, the employer must at some point provide consideration for the agreement,
such as confidential information, in order for the agreement to be enforceable. 209 S.W.3d 644, 65051 (Tex. 2006).
10 As Light v. Centel Cellular Co. of Tex. demonstrates, however, even these alleged interests would not automatically
render the covenant valid. See 883 S.W.2d 642, 64648 (Tex. 1994) (holding invalid a covenant not to compete that
pertained to specialized training, even though confidential or proprietary information was involved).
11 There is no significance to the fact that Cook was paid in stock options for the covenant not to compete. Where the
goal is restricting competition, the manner of payment is irrelevant. If stock options permit such a covenant because, as
the affidavit states, they align the interests of the employee with "the long-term success of the company, which, in turn
enhances the goodwill of" the employer, then any reward for a job well donea raise, promotion, bonus, or
pensioncould justify a noncompete on grounds it aligns employer/employee interests and thus bolsters "goodwill." At
bottom, none of these rewards, like "merely promising to pay a sum of money to the employee," can be used to
purchase a noncompete whose only purpose is to eliminate competition. Sheshunoff, 209 S.W.3d at 650. Absent some
other legitimate reason, such a restraint on trade is unenforceable.
12 Tex. Bus. & Com. Code § 15.05(a).
13 Id. § 15.04.
14 See id. § 15.50(a) ("Notwithstanding Section 15.05 of this code . . . a covenant not to compete is enforceable . . .     ."
).
15 Id. (emphasis added).
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16 Id. §§ 15.50.51.
17 In a sense, the "reasonableness" inquiry resembles the oversight long exercised by courts when applying the rule of
reason under antitrust laws. While "reasonableness" analysis in noncompete cases and "rule of reason" analysis in
antitrust cases are not identical, both inquiries envision a front-and-center judicial role in scrutinizing agreements that
curb competition.
Rule of reason analysis under antitrust laws must not be confused with reasonableness analysis under the
common law. Rule of reason analysis tests the effect of a restraint of trade on competition. By contrast, whether a
noncompetition agreement is reasonable depends upon its effect on the parties, the competitors, as it were. The two
standards are not directly related.
DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990). While this portion of our analysis draws upon the
instant contract's effect on competition, that analysis stems from an initial consideration of the contract's effect on the
parties, who areat bottomactors in a broader competitive scheme. This slight distinction demonstrates that while the
two standards may not be directly related, in practice they are indirectly related.
18 Tex. Bus. & Com. Code § 15.05(a).
19 Under the pre-1993 version, a noncompete was enforceable to the extent it "contains reasonable limitations as to
time, geographical area, and scope of activity to be restrained that do not impose a greater restraint than is necessary to
protect the goodwill or other business interest of the promisee." Act of May 23, 1989, 71st Leg., R.S., ch. 1193, § 1,
1989 Tex. Gen. Laws 4852 (amended 1993) (current version at Tex. Bus. & Com. Code § 15.50(a)) (emphasis added).
The current version reads, "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(a); Act of May 29, 1993, 73d Leg., ch. 965, § 9_64791, 1993 Tex.
Gen. Laws 4201 (emphasis added).
20 See, e.g., Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 660 (Tex. App.Dallas 1992, no writ).
21 See, e.g., Am. Express Fin. Advisors, Inc. v. Scott, 955 F. Supp. 688, 691 (N.D. Tex. 1996).
22 Adam's Smith ode to laissez-faire economics, The Wealth of Nations, remains worthy of study today:
It is the interest of [the] sovereign . . . to open the most extensive market for the produce of his country, to allow the
most perfect freedom of commerce, in order to increase as much as possible the number and the competition of
buyers; and upon this account to abolish, not only all monopolies, but all restraints upon the transportation of the home
produce from one part of the country to another . . .                                                                         . He is in this manner most likely to increase both the quantity and
value of that produce, and consequently of his own share of it, or of his own revenue.
Adam Smith, The Wealth of Nations: Book II 41112 (P.F. Collier & Son 1902) (1776). Similarly, the domino effect
that would result from permitting such restraints to remain cannot be understated. See id. at 371 ("[A monopoly] not
only hinders, at all times, . . . capital from maintaining so great a quantity of productive labor as it would otherwise
maintain, but it hinders it from increasing so fast as it would otherwise increase, and consequently from maintaining a
still greater quantity of productive labor.").
23 See id. at 412 ("Their mercantile habits draw [merchants] in this manner, almost necessarily, though perhaps
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                                                                                                                               insensibly, to prefer upon all ordinary occasions the little and transitory profit of the monopolist to the great and
permanent revenue of the sovereign . . .                                                                                       .").
24 See infra note 40 and related text. Some legal commentators are unsubtle in their market-based objections to non-
solicitation agreements specifically:
As to the non-solicitation of customers, such covenants are monopolistic and overreaching. What if the
customer would prefer to do business with the former employee, or at least seek a competing price quote, but does not
know that the former employee has resigned and started a new business? Something is amiss when consenting
businesses cannot transact business together, merely because another business got there first. As with non-competition
covenants generally, such contracts appear to restrict competitive activities that might lower prices, provide better
services for customers, and allow businesses to partner together where that might be most productive.
Graves and DiBoise, Strict Trade Secret and Non-Competition Laws, at 334.
25 Pet. Br. at 31.
26 Int'l Printing Pressmen & Assistants' Union of N. Am. v. Smith, 198 S.W.2d 729, 740 (Tex. 1946) (Brewster, J.,
dissenting).
27 Truax v. Raich, 239 U.S. 33, 41 (1915) (citations omitted). See also Bd. of Regents of State Colleges v. Roth, 408
U.S. 564, 572 (1972) (recognizing the right "to engage in any of the common occupations of life" as a constitutional
liberty interest); Stidham v. Tex. Comm'n on Private Sec., 418 F.3d 486, 491 (5th Cir. 2005) ("We have confirmed the
principle that one has a constitutionally protected liberty interest in pursuing a chosen occupation.") (citations omitted).
28 Smith v. Texas, 233 U.S. 630, 636 (1914).
29 2 St. Thomas Aquinas, Summa Theologica pt. II, q. 26, art. 12, at 519 (Fathers of the English Dominican Province
trans., Daniel J. Sullivan rev., Encyclopedia Britannica, Inc. 1952) (126574).
30 Ralph Waldo Emerson, Conduct of Life 234 (1860).
31 Voltaire, Candide 119 (Samuel Johnson ed., George Rutledge and Sons 1884) (1694).
32 President Franklin D. Roosevelt, First Inaugural Address (Mar. 4, 1933).
33 Id.
34 Id.
35 8 Sir William S. Holdsworth, A History of English Law 60 (2d ed. 1973).
36 (1711) 24 Eng. Rep. 347 (Q.B.); 1 P. Wms. 181.
37 Blake, Employee Agreements, at 629.
38 See Moffat, The Wrong Tool, at 880.
39 Mitchel, 24 Eng. Rep. at 350; 1 P. Wms. at 190.
40 See Cynthia L. Estlund, Between Rights and Contract: Arbitration Agreements and Non-Compete Covenants as a
Hybrid Form of Employment Law, 155 U. Pa. L. Rev. 379, 406 (2006) ("An overbroad non-competeone that lasts too
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long or that covers activities that do not threaten the employer's legitimate interestsmay deter the employee from
quitting and competing even when she has a right to do so, or it may deter a competitor from hiring the employee.").
The in terrorem effect is magnified in jurisdictions like Texas, where judges simply "blue pencil" overbroad
noncompetes to make them enforceable. See Tex. Bus. & Com. Code § 15.51(c); e.g., Prod. Action Int'l, Inc. v. Mero,
277 F. Supp. 2d 919, 931 (S.D. Ind. 2003) ("A current employee may be frozen in his or her job by an unreasonably
broad covenant. Even if the employee believes the covenant is too broad, she may be able to test that proposition only
through expensive and risky litigation."); Richard P. Rita Pers. Servs. Int'l., Inc. v. Kot, 191 S.E.2d 79, 81 (Ga. 1972)
("If severance is generally applied, employers can fashion truly ominous covenants with confidence that they will be
pared down and enforced when the facts of a particular case are not unreasonable.").
41 Noncompetes also shelter struggling companies that are facing headwinds of recession or industry turmoil. An at-
will employee might see dire times ahead for the company but is unable to find new employment if the prospect of
litigation spooks the employee or a potential new employer. "As a result, the individual may lose opportunities to
advance her career and compensation, and the employer may be able to insulate itself at least temporarily from the
competition of more vibrant enterprises for productive employees." Kate O'Neill, "Should I Stay or Should I Go?
"Covenants Not to Compete in a Down Economy: A Proposal for Better Advocacy and Better Judicial Opinions, 6
Hastings Bus. L. J. 83, 118 (Winter 2010).
42 Burdens on inter-firm mobility are especially acute in a fast-paced and tumultuous 21st-century economy. Greater
mobility would, one suspects, spur, not curb, the pace of high-tech advances and the dissemination of ideas and
knowledge.
43 The Federalist No. 51 (James Madison).
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