In Texas, non-compete agreements are a common feature of the employment landscape.  They are contractual arrangements between employers and employees wherein employees agree not to engage in certain competitive activities, such as working for a direct competitor or starting a competing business, for a specified period of time and within a defined geographic area after leaving their current job.

These agreements serve various purposes, including safeguarding employers’ trade secrets, protecting their client relationships, and preventing unfair competition.  In Texas, as in many other states, non-compete agreements are commonly used in industries where employees have access to sensitive information or play a significant role in driving business growth.

However, the enforcement and interpretation of non-competes are subject to specific legal standards and considerations.

Enforceability

Texas law allows non-compete agreements, but with limitations.  They must be reasonable and must not restrict employees greater than necessary to protect the legitimate business interests of the employer.  To be enforceable, a non-compete agreement must meet the following criteria:

  1. Part of an Otherwise Enforceable Agreement: This means the non-compete clause cannot be a standalone agreement.  Instead, it must be part of a larger employment contract with binding promises from both employer and employee.  In most situations, a non-disclosure agreement accompanying the non-compete satisfies this requirement.
  2. Valid Consideration: The employee must receive something of value in exchange for signing the agreement.  It cannot be any consideration, however.  Rather, the consideration itself must justify the need for the non-compete restrictions.  This could be access to confidential information, specialized training, or stock options.
  3. Reasonable Restrictions: The non-compete’s restrictions on time, geographic area, and scope of activity must be reasonable:
  • Time: Texas courts generally enforce non-compete agreements lasting from one to five years.  Longer durations may be upheld in specific circumstances, but the employer will have a higher burden of proving their necessity.
  • Geographic Area: There must be some relation between the employee’s job duties and the restricted territory.  Thus, the restricted territory should be limited to where the employee performed services for the employer or had access to confidential information.  For example, a statewide restriction for a salesperson working in a local market would likely be considered unreasonable.
  • Scope of Activity: The agreement should only restrict the employee from working in a similar role or any role that would involve the use or disclosure of confidential information that the employee received. Restrictions which prevent employees from working for a competitor in any capacity are likely unenforceable.

Practical Considerations for Employers and Employees

For employers, drafting enforceable non-compete agreements requires careful consideration of the specific circumstances and business interests involved.  Employers should avoid using off-the-shelf agreements and instead tailor their non-competes to the individual roles and responsibilities of their own employees, ensuring that they are reasonable and necessary to protect legitimate business interests.  Clearly define the protectable interests that you are seeking to safeguard and limit restrictions such that they are reasonable in scope. A carefully crafted non-compete agreement is more likely to be enforceable and achieve the desired outcome.

Employees, on the other hand, should carefully review and negotiate the terms of any non-compete agreement before signing it.  Understanding the implications of these agreements and seeking legal advice can help employees make informed decisions about their career paths and future opportunities.  Do not hesitate to negotiate the terms, particularly the scope and duration of the restrictions.

Conclusion

Non-compete agreements in Texas offer a valuable tool for businesses to safeguard their confidential information, client relationships, and fair competition.  However, for these agreements to be enforceable, they must comply with specific legal guidelines and strike a balance between protecting employers’ interests and preserving employee mobility.

Ultimately, navigating non-compete agreements in Texas requires a thoughtful approach that considers the needs of both employers and employees. Through clear communication, a focus on reasonableness, and a willingness to find common ground, both parties can achieve a solution that fosters a healthy and competitive business environment.