Multinational companies with operations in New York have been looking for opportunities to relocate operations to business-friendly Texas. The Texas Supreme Court, in Exxon Mobil Corp. v. Drennen, recently gave those companies another reason to do so. In an anticipated decision, the court allowed Exxon, which has operations in New York, to apply New York law to a stock forfeiture agreement with one of its Texas-based employees.
The employee had signed agreements in connection with receiving stock options (Agreements) that provided he would forfeit the options if, among other things, he left Exxon and went to work for a competitor. When the employee did so, he sued to recover his forfeited options, claiming that the forfeiture clauses in the Agreements were really "non-compete" provisions unenforceable under Texas law. Exxon argued the Agreements were governed by the law to which the parties had agreed – New York law – which allows enforcement of these types of stock forfeiture provisions.
The court first determined that an employee's agreement to forfeit unvested stock options if he went to work for a competitor was not a "non-compete" because it did not stop the employee from working for a competitor. Instead, such an agreement simply imposed a financial penalty for competing and, thus, provided the employee with the choice of whether to give up the options if he wanted to work for a competitor.
The court then determined that the movement of many of the world's largest corporations to Texas had shifted the state's fundamental policy outside the non-compete context: instead of just ensuring that employers treat all Texas employees the same, Texas' fundamental policy now also values ensuring that employment contracts be treated the same way for all employees, no matter where they live.
This court ruling gives comfort to employers with operations in other states. They should be able to select a non-Texas state law to govern their employment agreements without worrying that their Texas employees' contracts will be interpreted differently. Employers still must choose a law that has a connection to the parties. So, for those Texas employers with no connection to New York (or other states with more employer-friendly laws than those of Texas), the Exxon decision offers little assistance. This is particularly true since the court did not decide whether stock forfeiture provisions are enforceable under Texas law.
The moral of the story for Texas employers is that, if you have connections with New York or other states, you should be able to pre-select one of those state's laws to govern your employment agreements with Texas employees.
Originally published on Forbes.com.
This article is presented for informational purposes only and is not intended to constitute legal advice.
