Notably, the Supreme Court also chose to honor a choice of law provision in the agreement which selected New York law. This choice of law provision was respected notwithstanding the fact that the employee worked in Texas and Exxon is headquartered in Texas. The Court instead relied heavily on the fact that New York has well-developed law in the area of stock and securities because the stock exchanges are located in New York, and Exxon’s stated desire to have uniformity in how its employee incentive agreement are interpreted. Although the Court’s decision was ostensibly rendered under New York law, it appears likely the Supreme Court would have no problem reaching the same result under Texas law as the opinion states “the enforcement of these provisions does not contravene any public policy in Texas” and concludes that loyalty agreements are distinct from non-competes under Texas law.
The takeaway from this case is that employers now have another tool in their tool kit in terms of drafting appropriate agreements to discourage key employees from leaving to work for a competitor. One option is the stick – the non-compete – which will be subject to a rigorous review for reasonableness under Texas law. The carrot option – loyalty bonus – will not be subject to the same strict review for enforceability and can be used either alone or in conjunction with a non-compete. Moreover, for any company that is publicly traded on a stock exchange in New York, the Exxon case lays out the roadmap for ensuring the enforceability of such loyalty agreements by bypassing Texas law altogether.