Drafting Valid Texas Non-Compete Agreements

Although Texas courts will uphold valid non-compete agreements, they expect these documents to contain clear and reasonable terms. In addition, Texas employers can only execute these types of ancillary agreements when they’re directly related to a main document like a valid employment contract.

Companies that ask workers to sign these agreements must also make sure they’re offering proper “consideration” to each employee. Simply providing someone with continued employment will not be considered adequate. The employer must be offering such valid “consideration” as a definite plan to share highly valuable “trade secrets” or unique, proprietary information with each employee required to sign a non-compete agreement.

Basic terminology regarding these agreements

Covenants not to compete are also sometimes referred to as non-compete agreements or “non-solicit” agreements. That latter term refers to the departing employee’s promise not to solicit any of the former employer’s customers until after a set time period noted in the agreement has ended.

In some cases, the shared information might just be limited to the the names and addresses of the employer’s current customers. Of course, the validity of all terms set forth in a non-compete agreement may one day be subject to a court’s interpretation.

What follows is a closer look at the terms and definitions governing Texas non-compete agreements. They’re set forth in Section 15.50 (and following) of the Texas Business and Commerce Code. Stated succinctly, non-compete agreements must set forth reasonable time limitations, detail the scope of activities to be restrained – and describe the geographical area to be covered. This article concludes with a discussion of how you and your Houston employment law attorney should respond if you learn that a former employee has violated his/her covenant not to compete.

A reasonable limitation on the geographical area you seek to control

Stated simply, your agreement will probably be viewed as valid by a court if it only restricts the former employee from competing against you (or working for a competitor of yours) within the same basic geographical area where s/he worked while still employed by you. While a broader area might be considered legitimate, you might have to justify that to a court one day, based on unique aspects of your business industry or other similar issues.

Courts often frown upon these types of covenants when they’re overly broad. The law favors free trade and competition unless a greater employer right (or threat to employer interests) can be clearly established.

A reasonable time period is referenced for restricting the former employee’s activities

Although there don’t seem to be any legal experts willing to name a specific time period you should choose, the consensus appears to be that you shouldn’t make this part of the covenant unduly burdensome.

Speaking in very general terms, if you name a time period much longer than one or two years, (directly dependent on the nature of your company’s work), your lawyer may have to justify that longer time period in court. After all, people are entitled to move on with their lives, regardless of whether you fired them — or they simply wanted to do something new in their work lives.

The scope of the activities being restricted must be fair and reasonable

You normally cannot completely restrict a departing employee’s best options for finding new work. For example, assume an employee has worked exclusively in the computer field for all his or her life, up until leaving your firm. A court would probably consider it overly burdensome if your non-compete agreement forbids that person from accepting or soliciting all types of work in that very broad field.

However, if that employee provided you with highly specific work in a unique sub-field of computer science, you might be able place a restriction on that type of work for a relatively short period of time. Reasonableness is crucial.

What can you do if you discover a former employee is violating a non-compete agreement?

      A. When the questionable behavior does not raise an urgent concern

If that former employee signed what you believe is an enforceable covenant not to compete, you can ask your Houston employment law attorney to take one or more actions on your behalf. However, if the need to stop the past employee from further infringing your rights is not immediate, your lawyer can start by sending the former employee a letter, reminding him/her of the agreement and of your belief that s/he is likely violating it and must stop doing so.

Should you again learn that the former employee is still violating your agreement, you can also contact that individual’s employer and state your concerns, noting the earlier letter sent by your attorney.  If the infringing activity continues, you can file a lawsuit. (Employers are often tipped off about such questionable behavior by current, loyal customers who’ve been recently contacted by the former employee.)

     B. When the wrongful behavior could cause immediate damage to your company

If you believe that you’re about to suffer irreparable harm due to the former employee’s current use of your company’s “trade secrets” or contact with your customers, your lawyer can ask a court to issue an injunction. If granted, this should put an immediate stop to the alleged, illegal activities.

Should the judge decide that the current threat posed to your company is highly significant, s/he can even grant a temporary restraining order (TRO) that prohibits the former employee from doing anything further that could violate the agreement until a first hearing can be held. Anyone who ignores a TRO (or violates one) can be treated as being in contempt of court. That person can then be punished with a fine, some form of imprisonment – or even possibly both.

Conclusion

Always remember that Texas courts demand that all terms in your non-compete agreement be reasonable. Former employees do have a right to move on with their lives and find new opportunities to support themselves that do not directly interfere with your business or its current viability.

Our Murray Lobb attorneys welcome requests for legal advice about covenants not to compete and other employment law issues. We’re also fully equipped to address most corporate and business law matters, as well as your estate planning needs. Please feel free to contact us if you ever need us to draft any contracts or other documents required by your business.