Non-compete agreements are important to Texas business owners who understand the importance of protecting their business goodwill, trade secrets, and other confidential or proprietary information. It is also extremely important for business owners who invest their time and money in employees. Without an enforceable non-compete agreement, a business owner can spend loads of resources on an employee who in a short time takes that training and experience only to start the same business as a direct competitor.
While non-competition agreements are enforceable in Texas, these agreements must follow the following guidelines:
- The agreement must be “ancillary to or part of an otherwise enforceable agreement”
- The agreement must have “reasonable” limitations with regard to its limitation as to time, geographical area and scope of activity.
Ancillary To or Part of an Otherwise Enforceable Agreement
The most common reason a non-compete agreement is determined to be unenforceable is that it is not part of an otherwise enforceable employment contract or the non-compete agreement itself is not supported by “consideration.” Often times we see business owners have at-will employees sign a non-compete, non-solicitation agreement but give nothing to the employee in return. This is what the law means when referring to “consideration”. Business owners wrongfully assume that the employees’ paycheck and continued employment is the consideration but it is not. Texas is an at-will employment state meaning that without an employment contract, the employer or employee can terminate the employment at any time without cause. In this context, at-will employment does not create an enforceable agreement beyond the employee getting paid for work completed.
Texas law provides that a covenant not to compete is reasonable if it is limited in duration, geographical area, and scope of business activities. There are no bright-line rules but instead, the reasonableness is reviewed on a case-by-case basis. Courts will likely uphold an agreement that lasts for 1-2 years after termination and is limited to restricting business activities similar to the employee’s former job duties. Is it still possible for the former employee to compete against the former employer? Yes. The geographical restriction is how far a former employee must be from the former employer before they are able to conduct business activities that would otherwise be prohibited by the non-compete agreement. The reasonable of this restriction is much more industry-specific. A good example is a barbershop. Would it be unreasonable to agree that a former employee cannot immediately open a barbershop across the street? Yes. Would it be unreasonable for them to open a barbershop in another city or in the same city? Maybe. The geographical restriction should only be an area sufficient to discourage a customer from traveling to the new barbershop. How far are you willing to drive to your barber? That is the question that the judge or jury will be contemplating when reviewing your non-compete agreement.
Daly & Campbell have litigated non-compete agreements in counties across our area however the agreements have rarely been enforceable. If you are a business owner or former employee facing an issue with a non-compete agreement, contact us so that we can guide you to a successful outcome. If you are a new business or a person considering a new job opportunity, now is an even better time to contact us so that we can help you avoid future problems.