Is Your Texas Non-Compete Agreement Enforceable?

There’s a common misconception that non-compete agreements aren’t enforceable in Texas. Fortunately for employers in the Lone Star State, this is untrue.

However, there are a few hoops to jump through to help ensure your company’s non-compete agreements can hold water.

sifotography / 123RF Stock Photo

In order to have a fighting chance to enforce a non-compete agreement with a Texas employee, it must meet the strict requirements of the Texas Business and Commerce Code § 15.50. The good news is that, since 2006, the Texas Supreme Court has continued to make the requirements under the code much more flexible for employers.

Texas non-compete agreements must abide by Goldilocks’ golden rule: not too hot (unreasonably restrictive on the employee) and not too cold (overly broad in scope). This means the agreement must be reasonable concerning time (one year or less is often considered reasonable), geographical area (within a certain metro area or region, depending on what the employee does for the company) and the scope of activity to be restrained (prohibiting an employee from performing the same or similar job functions at a direct competitor). The non-compete’s scope should impose no greater restraint than necessary to protect the employer’s goodwill or other business interest.

What’s more, the agreement must be ancillary to or part of an otherwise enforceable agreement at the time it is made. To satisfy this criteria, usually non-competes will be entered into at the inception of employment in connection with the employee signing a confidentiality and non-disclosure agreement. Non-competes are also often entered into in connection with a sale of a business.

A recent case involving a San Antonio, Texas, printing company can serve as an example of how a Texas non-compete agreement can be tested and, ultimately, prevail. In the case, the defendant sold his specialty printing business to another company and went to work for that new company, at which time he and his former partners signed a non-compete agreement not to engage in a competing business with the purchasing company for five years. As the defendant continued working for the new company as a production manager and, then, a sales manager, he gained access to trade secrets and to key customers. At the same time, he formed a new company in direct competition to his current employer, began advertising to the public, and used his current employer’s confidential client lists and trade practices to help establish the company.

This employer (the plaintiff) had a good case against the defendant since the non-compete agreement was reasonable in order to protect the business’ goodwill and trade secrets and it was not oppressive to the defendant (he was able to make a good living while following it). The agreement was limited by geographic scope and it was also limited to restricting activities which related only to specialty printing and other services provided by the employer. Another key component is that the employer could suffer irreparable injury (from the loss of trade secrets and customer information) unless an injunction was issued, and the irreparable damage to the employer could far outweigh any harm to the defendant. For more on the case, visit this link.

The bottom line when it comes to non-compete agreements in Texas is to take Texas Code 15.50 seriously from the start, from the moment an employee signs on. If the agreement isn’t rock-solid at that point—including reasonable restrictions on time, geographical area and scope of activity as well as in how it is presented—then it may not hold up in court later. Plan ahead, be reasonable and don’t leave employee non-compete issues up to chance.

Photo by sifotography / 123RF Stock Photo

2017-09-19T22:45:36+00:00 February 3rd, 2017|Non-Compete Agreement, Texas|