The “Buc” stops here: the Fourteenth Court of Appeals explains why compensation re-payment provisions are unreasonable restraints of trade
While Texas law favors the enforcement of contracts, a recent decision by the Fourteenth Court of Appeals in Houston shows that even Texas has limits regarding the enforceability of agreements that act as unreasonable restraints of trade.
In October 2017, the Court heard argument and rendered judgment against Buc-ee’s, highway convenience store powerhouse, specifically finding the compensation re-payment provisions in its employment agreements were unenforceable under Texas law.
In 2009, Buc-ee’s hired an assistant store manager who signed an employment agreement expressly designating her as an at-will employee. Under her 2009 agreement, the employee was paid a split salary which required her to select a percentage of her compensation that would be paid on an hourly basis, with the remaining percentage of her compensation paid on a flat monthly basis. The flat monthly payments were designated “additional compensation” under the 2009 agreement. The 2009 agreement required the employee to work for Buc-ee’s for a minimum of five years. If she did not, she was required to repay to Buc-ee’s the “additional compensation” she received.
A year later, the employee signed another agreement in which she remained an at-will employee and would receive a weekly salary. The 2010 agreement also contained a “retention pay” provision, which entitled her to an advance payment of the net profits earned by her Buc-ee’s store, as well as a one-time lump sum payment. To earn the retention pay, the employee was required to work a minimum of four years from the effective date of the 2010 agreement. If she quit or was fired for any reason, she was required to repay her “retention pay” to Buc-ee’s.
After three years, the employee left Buc-ee’s. A year later, Buc-ee’s sent a demand for $66,720.29, plus interest and attorneys’ fees, citing the “additional compensation” and “retention pay” provisions under the 2009 and 2010 agreements.
The employee sought a declaratory judgment that the “additional compensation” and “retention pay” provisions of the 2009 and 2010 agreements were unreasonable restraints of trade. Buc-ee’s argued that the provisions were forfeiture provisions, and not restraints of trade. The trial court granted summary judgment in favor of Buc-ee’s, and the employee appealed.
The Fourteenth Court of Appeals reversed the summary judgment and rendered judgment that the “additional compensation” and “retention pay” provisions were unreasonable restraints of trade, and unenforceable under the Texas Covenant Not to Compete Act.
Of particular note, the Court held that the provisions were not forfeiture provisions because they required the employee to repay amounts she had already received as compensation. As such, the “additional compensation” and “retention pay” provisions imposed a severe economic penalty on the employee if she exercised her right as an at-will employee, and exposed her to the same penalties if Buc-ee’s decided to fire her even through no fault of her own.
Texas courts remain vigilant in the protection of the at-will employment doctrine, and employers should take care to ensure that their employment agreements do not contain unreasonable restraints of trade.