An increasingly common employment agreement is one which requires the employee to forfeit a part of his/her salary if certain conditions are not met. In Rieves v. Buc-ee’s, 532 S.W.3d 845 (Tex.App. Hou. (14th District.) 2017), the Fourteenth Court of Appeals addressed one such agreement. In her agreement, Kelley Rieves agreed to give up some of her pay if she did not work at least 48 months and give six months notice before leaving. Buc-ees described that pay as “retention pay” in the agreement. A year after Rieves quit, Buc-ees sent her a letter seeking the re-payment of $66,000.

The employer filed a motion for summary judgment, arguing this “retention pay” was loyalty pay, comparable to stock options. The trial court agreed and granted the employer’s motion.

Restraint on Free Trade

On appeal, the employee argued this forfeiture clause acted as a restraint on free trade. As such, the clause violated Free Enterprise and Antitrust Act, codified at Tex.Bus. & Com.C. §15-05(a). The Supreme Court of Texas, noted the Fourteenth Court, has concluded that covenants limiting employees’ professional mobility are unlawful restraints under this statute unless they fall with the exceptions allowed in the Covenants Not to Compete Act. That act prohibits unreasonable limits on the ability to change employers as to geography, scope of activity to be limited and as to time.

Here, Buc-ees has sued the former manager for $66,000. This forfeiture clause would apply even if Buc-ees fired her on her last day of work of the 48 month time requirement, if she quits to take a non-competing job, or if she quits to take no job at all. This forfeiture clause has no time limit, no geographical limit and no limit as to the scope of work to be restrained. That means it fits none of the exceptions allowed for covenants not to compete.

Buc-ees argued this forfeiture cause simply amounted to loyalty pay, like stock options. The appeals court rejected that argument. Forfeiting pay requires the employee to disgorge a substantial part of her pay, even if Buc-ees fires her. And, the longer she works for Bus-ees, the larger becomes the penalty if she quits her job. And, unlike stock options, the compensation is actually paid to the employee. It was not a bonus which was promised at the conclusion of some event.

See the opinion here.