Landry’s Restaurants, the Houston-based company that owns more than 40 restaurant chains and 400 properties including restaurants, hotels and casinos, has sued a former employee for breaching a non-compete agreement. Last week, Landry’s filed suit against Tim Kohler, who formerly served as director of operations for Vic & Anthony’s Steakhouse, the highly-acclaimed steakhouse with locations in Houston, Las Vegas, Atlantic City and New York. Landry’s fired Kohler in August for “performance related reasons.” Upon his termination, Kohler accepted a severance package conditioned upon reaffirming and extending his non-compete agreement. Kohler subsequently went to work for a company called Landmark Houston Hospitality Group, where he will be involved in operating the yet-to-be-opened Mr. Peeples Seafood & Steaks in Houston. The lawsuit names both Kohler and Landmark as defendants.
According to the complaint, Kohler signed a non-compete provision that barred him from working for a competitor within 30 miles of any Landry’s restaurant for eighteen months following the end of his employment. The severance agreement reaffirmed the non-compete and extended its duration. Additionally, Koehler also agreed not to solicit any Landry’s employers to work for a competitor for at least two years.
In a case like this, I normally would give the former employee an edge on the merits: First, the agreement is overly broad in geographic scope. Landry’s has restaurants everywhere. If Kohler could not work for any competitor (i.e. any other restaurant company) within 30 miles of a Landry’s restaurant, he probably could not work anywhere in the state of Texas. Remember, Landry’s owns restaurants like Morton’s, McCormick & Schmick’s, Rainforest Café, and Bubba Gump Shrimp, just to name a few. Under the terms of the non-compete agreement, Kohler would be barred from working in every major city in Texas. That’s a bit over the top.
In addition to being overly broad in geographic scope, the legitimate business interest also is a bit suspect. The complaint alleges that Kohler had access to confidential information, including things like Landry’s policies and procedures, pricing, and directories of employees, customers and vendors. But that’s mostly smoke and mirrors: First, vendors (e.g. companies that supply food, wine, etc.) are probably well-known within the industry and probably work with multiple restaurants. In many states, there is case law holding that vendor/supplier relationships cannot be protected with a non-compete agreement. Next, there are the customers. Restaurants typically do not have exclusive customer relationships of the type that can be protected with a non-compete agreement. With respect to knowing the identity of current Landry employees, that also is public knowledge and will not justify enforcement of a non-compete agreement. When you boil it down, Landry’s is alleging that Kohler, who they fired six months ago, might remember confidential information about its policies, procedures and pricing. That is not a particularly compelling argument.
Then there is the matter of the non-solicitation clause. In Texas (unlike in some other states), agreements not to solicit are evaluated according to the same framework as non-compete agreements (i.e. legitimate business interest test). See, e.g., Marsh USA Inc. v. Cook, 354 SW 3d 764 (Texas 2011). Often, non-compete cases focus on a former employee soliciting his old company’s clients. In that situation, the non-solicitation clause is being used to protect a legitimate business interest. But in the context of the restaurant industry, those types of customer relationships do not really exist. Instead, this case focuses on Kohler’s solicitation of Landry’s employees. Basically, the argument for enforcing this non-solicitation clause would be that Kohler (and Landmark) are soliciting Landry’s employees because they have valuable, confidential information or important contacts in the industry. I’m not sure I buy it. Again, there is a strong argument for why industry relationships (e.g. suppliers, vendors, etc.) should not be entitled to protection. So, once more, the issue of confidential information will be paramount.
That said, Landry’s has other factors that cut in its favor. Remember, Kohler allegedly accepted a severance package in exchange for reaffirming his non-compete commitments and extending the term of his non-compete agreement. Although this technically should not factor into the court’s evaluation of whether or not the agreement is supported by a legitimate business interest, I am fairly certain that it will. If Kohler accepted a severance package to stay out of the industry, pocketed the money, then turned around and went to work for a competitor, that is inequitable. The court won’t like that. And that will probably translate into the court giving Landry’s the benefit of the doubt on its somewhat vague allegations about its confidential information. It’s a sort of rough justice.
The case is Landry’s Inc. v. Kohler, Case No. 2013-18071, 152nd Judicial District Court of Harris County, Texas.
Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida. He focuses his practice on cases involving non-compete disputes, antitrust and business torts. He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.
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