The non-compete statute of the Texas Business and Commerce Code specifies some rules for businesses that want to have employees sign non-compete agreements. Employers have had their workers sign these agreements for many years, but they’ve usually had a hard time actually enforcing a non-compete agreement when employees have violated them. The courts have usually sided with the employees because the agreement jeopardizes their right to earn a living.
However, things are changing. Texas courts have begun to see non-compete agreement in a more favorable light. This has increased the enforceability of non-compete agreements. But, there are still some hurdles. To be enforceable, the agreement must be supported by valid consideration and the restrictions imposed on employees must be reasonable in terms of restraint on activities, duration of the agreement, and its geographic scope.
To increase the chances of a non-compete agreement being enforced, companies should consider the following:
- The agreement should protect legitimate business interests: To be enforceable, the agreement should be seen to protect the company’s trade secrets, confidential information, and other business interests. It should specify the competitive advantages of the company and the interests that need to be protected.
- The employee should receive adequate consideration: A non-compete agreement is enforceable only if the employee has received adequate consideration for agreeing to enter the agreement. In the case of a would-be employee, the promise of employment itself is usually sufficient. But, in the case of existing employees, additional consideration, such as a pay raise or promotion, may be required.
- The scope of restrictions must be reasonable: Texas courts will agree to enforce a non-compete agreement only if the scope of restrictions is reasonable. For example, an automaker may be able to prevent a former employee from working for a competitor, but cannot stop him from working in a different industry.
- The geographic restriction must be reasonable: For the agreement to be enforceable, the geographic restriction imposed on the former employee must be limited to a specific region. For example, a business operating in Dallas may prevent its former employee from working for a competitor in Dallas, but not in other places outside the city.
- The duration of the agreement must be reasonable: The agreement must specify an effective period whose reasonableness depends on the specific facts of the case. For example, if the agreement is designed to protect a confidential information, the duration should not extend beyond the date when the information ceases to have value.
- The agreement should be assignable to the company’s buyer: The agreement should include specific language to ensure the company may assign its right to enforce the restrictions to the new owners of the company in the event the company is sold. This often plays a critical role in determining the purchase price of the company.
- The company should have the right to receive an injunction: The agreement should make it clear the employee agrees the company is entitled to receive an equitable relief if he or she is found to have breached the agreement. This can include a temporary restraining order, a preliminary injunction or a permanent injunction.
- The agreement should specify it is governed by the laws of Texas: Enforceability of a non-compete agreement varies from state to state. Therefore, any agreement made within the state of Texas should specify that will be governed by the laws of Texas.
Enforcing a non-compete agreement requires it be deemed to be unfair to the employee; otherwise, the court may either refuse to enforce it or narrow its scope and duration. But, as an employer, you have the right to take every lawful step to protect yourself. If you need help in drafting a non-compete agreement or in enforcing an agreement made with a former employee, then talk a skilled and experienced non-compete agreement attorney at Bennett Weston for advice.