What Constitutes Material Breach in Texas?

Determining whether a contract has been breached is fundamental to business disputes in Texas and elsewhere.  Oftentimes, breach of contract is not intended by either party.  In fact, the contract itself may be interpreted by the “breaching” party in such a way that the purportedly breaching conduct is not linked to the essential purpose of the contract.

In Texas, each party is required to perform their duties and obligations in accordance with a valid contract, unless their performance is excused or otherwise discharged by a material breach of said contract.  Materiality and immateriality can be confusing concepts for potential claimants who are inexperienced in the realm of contract litigation, but it’s a critical determination in most contract disputes.  Here at Berg Plummer Johnson & Raval, LLP, a Houston business contract attorney can help you sort through and evaluate the materiality of such breach.

Put simply:

If a breach is immaterial, then the contract will continue as valid.  If a breach is material, then the non-breaching party may terminate the contract if they so please and may be entitled to sue the breaching party for damages.

Whether a breach is material depends on a number of different factors.  Let’s explore some of the basics.

Texas Materiality

Breach occurs when one of the parties involved in the contract fails to perform one of their duties or obligations under the contract (assuming that the failure to perform is not excused by some other mechanism).  Importantly, not all breach is significant enough that it will terminate the contract or excuse the other parties from having to perform their duties under the contract at-issue.  Thus, the issue of “materiality” is front-and-center.

Materiality of a breach is a question for the jury and is a fact-based determination (though there are some breaches, such as the failure to perform contractual duties in a timely manner, that may be deemed “material” by the court, as a matter of law).  In Texas, a contract is materially breached if the essential purpose of the contract has been contravened, or if the bargained-for benefits of contractual performance have been deprived as a result of breach.

A number of different factors influence the determination of materiality, including but not limited to: the amount of losses and whether it can be compensated, whether the breaching party acted in good faith, and if there has been a deprivation of contractual benefits.

Consider the following example:

Imagine that you have entered into a service contract with a musician to perform at your entertainment venue.  The musician is intoxicated at the time of the performance, and gives an underwhelming performance overall, though the set was completed without any further complications.  The crowd leaves fairly unsatisfied.

Whether the musician breached their contract is a question of fact.  Arguably, the musician violated the “spirit” of the contract by showing up intoxicated, but if they performed their set to completion, then — even if the performance was below-par — it could be reasonably argued that the musician did not materially breach their contract.  Further, a court would likely find that the losses were not so significant, as customers already paid to see the musician (and would not blame the venue for the musician’s behavior), and the musician would not easily be able to compensate you as the losses are not distinct and identifiable.

Contact an Experienced Houston Business Contract Attorney Today

Whether you have suffered losses due to a breach of contract or are currently being sued on the basis of a purported breach of contract, it’s vital that you connect with a qualified attorney as soon as possible so that the claims at-issue can be properly evaluated.  Get in touch with an experienced Texas contract attorney here at Berg Plummer Johnson & Raval, LLP for assistance with your upcoming lawsuit.

The Enforceability of Texas Non-Compete Agreements

In most states, covenants not to compete are legal, but are limited in effect so as to prevent unreasonable abuse of such restrictions.  Similarly, in the state of Texas, the legislature enacted the Covenant Not to Compete Act, which governs the enforceability of employee non-compete agreements.  Under the Act, whether a non-compete agreement is enforceable depends on the particularities of the agreement, as well as the circumstances surrounding the covenant not to compete.  This can be difficult to parse, but with the assistance of an experienced Houston business contract attorney here at Berg Plummer Johnson & Raval, LLP, you can accurately evaluate the enforceability of your non-compete agreement.

When an employer and an employee enter into a non-compete agreement, they are balancing the preservation of the employer’s business interests with the employee’s freedom to work without restriction.  In exchange for being hired, the employee agrees not compete with the employer’s legitimate business interests for a limited, specified period of time, and within a circumscribed geographical area.

Suppose, for example, that an employee has joined an advertising firm as a junior account executive.  The new employee is required to sign a non-compete agreement that restricts them from working for a competitor in the area for six months.  The employer is concerned that, over the course of employment, the employee may form close relationships as an account executive with various clients.  By the time the employee is ready to leave the firm, the clients may be more loyal to the employee than to the firm itself.  As such, if the employee were to work for a competitor firm in the area, they might lure clients away and therefore interfere with the legitimate business interests of their original employer.

ENFORCEABILITY AND RESTRICTIVENESS

In Texas, a valid non-compete agreement cannot be too restrictive.  It must only impose the absolute minimum restriction necessary to protect the legitimate business interests of the employer.  Otherwise, the agreement will be deemed unenforceable pursuant to Texas statutory law.

Pursuant to section 15.50 of the Act, there are certain criteria upon which the enforceability of a non-compete agreement rests.  Specifically, the following criteria lie at the core of an enforceability determination:

  • Duration of the non-compete restriction
  • Geographical area limitation
  • Reasonable restriction on scope of activity

Each of these criteria are weighed against the circumstances in determining whether they are reasonable and do not impose a disproportionate restriction on the activities of the former employee.

For example, if a non-compete agreement that prevents an employee from working for any other competitors in the industry for a period of two years, with no geographic limitations, will likely be considered unreasonable and disproportionately restrictive on the employee’s activities.  A Texas court would almost certainly find that it is invalid and unenforceable.

Fundamentally, the restriction must not impose a restriction that goes beyond the minimum necessary to satisfy the legitimate business interests of the employer.

CONTACT AN EXPERIENCED HOUSTON BUSINESS CONTRACT ATTORNEY TODAY

Whether you are a company attempting to enforce a non-compete agreement in Texas to prevent a former employee from interfering with business, or an employee interested in finding the non-compete agreement invalid, it’s important that you get in touch with a qualified attorney for further guidance.  Connect to an experienced Texas contract attorney here at Berg Plummer Johnson & Raval, LLP as soon as possible.

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