Texas Court Rejects Effort To Dismiss Non-Compete Lawsuit On Free Speech Grounds
Texas courts are increasingly encountering efforts to challenge restrictive covenant agreements on free speech grounds, where the restricted activity includes business-related communications. A recent Texas appellate court decision indicates that this strategy has its limits.
In Hieber v. Percheron Holdings, LLC, No. 14-19-00505-CV (Tex. App.—Houston [14th Dist.] Nov. 14, 2019), Percheron Holdings, LLC (“Percheron”) sued Hieber, a former sales executive, for violation of a non-compete and non-solicitation agreement, based on Hieber’s employment with a Percheron competitor and alleged communications with Percheron’s clients during industry meetings and social functions. Hieber responded by moving to dismiss the lawsuit pursuant to the Texas Citizens Participation Act (“TCPA” or the “Act”).
The TCPA does not strictly prohibit lawsuits arising out of a defendant’s free speech activities, but rather it imposes a heightened pleading standard in such cases. The purpose of the Act “is to encourage and safeguard the constitutional rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect the rights of a person to file meritorious lawsuits for demonstrable injury.”
Under the TCPA, a defendant may move for dismissal of a legal action that arises out of “a party’s exercise of the right of free speech, right to petition, or right of association,” if the plaintiff has not pleaded specific facts to support each element of the asserted causes of action. In response to such motion, the plaintiff must articulate the requisite factual basis or else demonstrate that such basis already has been pleaded. Effectively, the TCPA elevates the required pleading standard for such actions from notice pleading to fact pleading. A plaintiff’s failure to meet the elevated pleading standard in response to such a motion carries the severe consequence of dismissal with prejudice.
Further, the TCPA sets forth a commercial-speech exemption, which provides that the Act “does not apply to a legal action brought against a person primarily engaged in the business of selling or leasing goods or services, if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product, insurance services, or a commercial transaction in which the intended audience is an actual or potential buyer or customer.”
Hieber argued in his motion to dismiss that the activities Percheron characterized as a solicitation of customers constituted the exercise of free speech under the TCPA. However, in defeating the motion, Percheron convinced the court that the speech at issue fell within the commercial-speech exemption. Specifically, Percheron established that Hieber was engaged in communications with actual or potential customers of LJA for the purpose of persuading them to engage his new employer as their service provider.
In his attempts to rebut Percheron’s argument, Hieber argued that he “did not sell anything” but was merely an employee of the seller. The court rejected that argument on the grounds that the commercial-speech exemption applies just as much to employees as to a business itself, and because the exemption does not require the defendant to be responsible for a completed transaction. The court explained, “even a proposed transaction will suffice.” The court also rejected Hieber’s argument that the conduct at issue, including his attendance at industry/charity events, did not implicate any efforts by him to sell services to LJA’s actual or potential customers. As the court noted, the entire purpose of those activities was to acquire additional business for LJA.
A review of published case law in Texas reveals approximately twenty cases in the past two years where a former employee moved to dismiss a non-compete or similar restrictive covenant lawsuit under the TCPA. While Percheron successfully invoked the TCPA’s commercial-speech exemption to sustain its claim arising from Hieber’s alleged solicitation of former customers, this exemption only covers customer communications, and may not relate to the majority of potential restrictive covenant violations (e.g., association with a competitor, disclosure of proprietary information to a competitor, solicitation of employees, etc.). As such, employers pursuing restrictive covenant litigation in Texas should first confer with experienced counsel as to whether the TCPA applies to their claims, and, if so, whether there is sufficient information about the alleged violations to establish the Act’s heightened pleading requirements. Employers are encouraged to contact a Jackson Lewis attorney for assistance in this process.