Our Dallas based attorneys represent and advise executives and companies concerning their rights and duties in connection with non-compete agreements and the Texas Covenants Not to Compete Act.
Many Texas employers require their employees and executives to sign non-competition agreements, also known as covenants not to compete. These agreements typically restrict a current or former employee from participating in a competing business. In general, these agreements may be enforceable depending on the circumstances surrounding the formation of the agreement and the scope of the non-competition terms stated in the agreement.
In 1989, the Texas State legislature passed the Covenants Not to Compete Act which provides specific requirements and procedures governing the interpretation and enforcement of non-competition agreements in the State of Texas. In 1993, the Act was amended.
The act provides that a covenant not to compete is enforceable if:
- It is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made;
- It is reasonable as to time, geographic area and scope of activity; and
- Do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the employer.
A Texas employer who hires an “at-will” employee must provide compensation or something of value in return for an employee’s agreement to a covenant not to compete. This compensation or “consideration” may include additional compensation or a bonus. The consideration may also include a promise to provide confidential business information or “trade-secrets”
Many at will employees mistakenly believe that these types of agreements are not enforceable and that they will be able to work for a competing business if they are fired or decide to leave their current employer. In many instances, the question is not whether the agreement is valid, but to what extent the employee will be prohibited from competing against their former employer. In the event of a lawsuit, a judge will be called upon to decide the extent to which the agreement will be enforced. In other words, the enforceability of the agreement is not an all or nothing question. The Texas Covenant Not to Compete Act specifically provides that it is appropriate for the Court to limit the former employee’s ability to compete. Generally, the court will look at such things as the time period of the non-compete, the geographic scope, the areas of competition or subject matter of the provision, and whether the provision is limited to the employer’s actual customers.
In general, courts try to limit these agreements to the geographical locations where the employee actually worked, the area(s) of the employer’s business that the employee worked in, and the actual customers the employee served. In most instances, a one or two year period is considered reasonable. However, every case is unique and must be considered based upon the specific facts involved.
Because every case is unique, it is important to have an attorney review your non-compete agreement and evaluate the factual circumstances of your situation.How We Help
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