If you have followed the steps in Part I, you might now be in possession of evidence confirming that your ex-employee is violating his or her non-compete agreement. Such evidence will do you no good, however, if the non-compete agreement that you are relying upon is not enforceable. So, before you race to the courthouse asking for a temporary injunction, an assessment of enforceability is in order. This analysis needs to be done quickly, if not simultaneously, with the steps described in Part I.
Over the years, Texas courts have steadily moved toward making the enforceability of non-compete agreements easier. This post addresses the most current general requirements as spelled out by the Texas Supreme Court over the last decade, but beware of the old cases that used to impose additional requirements, but are no longer good law.
In Texas, non-competition agreements are governed by Section 15.50(a) of the Texas Business & Commerce Code, which states 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 to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”
Thus, Texas courts require two factors to enforce a non-compete agreement that is ancillary to an otherwise enforceable agreement:
1. There must be consideration.
2. The limitations on time, geographical area, and scope of activity to be restrained must be reasonable.
Question 1: Did the Employee Receive Adequate Consideration for His/Her Promise Not to Compete?
Because Texas is an at will employment state, an employer’s offer of employment can be terminated at any time, is illusory, and does not by itself constitute sufficient consideration for an employee’s promise not to compete. Therefore, an employer must promise its employees something other than an offer of employment in exchange for their signature on the non-compete, which includes confidential information, trade secrets or specialized training provided by the employer. Consideration can also include stock options or other financial incentives that are “reasonably related” to the employer’s interest that is worthy of protection.
Question 2: Are the Limitations on Time, Geography and Scope Imposed by the Non-Competition Agreement Reasonable?
Non-competition agreement must restrain no more activity than is necessary to protect the legitimate business interest of the employer. Texas courts have consistently refused to enforce agreements that prohibit all competitive activity or prohibit employment in any capacity for a competitive entity. The courts have also refused to enforce agreements that prohibit activity unrelated to the work the employee preformed for the former employer.
Similarly, Texas courts have also determined that non-competition agreements that contain no geographical limitations or fail to limit the scope of activity to be restrained are unreasonable and unenforceable. Generally, a reasonable area of restraint consists of only the territory in which the employee worked for the former employer. Thus, courts in the past have refused to enforce non-competition agreements with nationwide applicability when the employee did not have nationwide responsibilities for the former employer.
While the court in Texas have authority to reform a non-competition agreement to narrow the scope or the geographical area of the agreement so as to make it enforceable, they will not always do so.
So, hopefully, you had legal advice regarding the non-compete agreements when they were drafted and the above issues are not going to prevent you from enforcing them. If not, you need to revise your current non-compete agreements and the employment policies that affect the exchange of consideration to ensure that the above-described requirements are met.
If, after conducting the above enforceability analysis, you believe that your non-compete agreements contain reasonable limitations and the former employee was given some sort of consideration in exchange for signing the non-compete agreement, you might have an enforceable agreement on your hands. I will discuss the next steps of enforcing a non-compete agreement in Part III.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. His practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.
I am a contributing author in my partners new book coming out regarding departing employees through Texas Lawyer. I think you would like it and find it useful.
Hope all is well.
Thanks, Dave. When is it coming out?
Great article, Leiza.
Thank you, Angelle.
do non-competes in Texas generally prohibit someone from working in the same industry? my spouse signed an agreement that makes it seem like he cannot work in his field. how do we determine if this is too broad? his former employer was a subcontractor, and he is being recruited by a prime contractor (i.e. the company who HIRES the subcontractors). these don’t seem to be competitors to me, but I’m no lawyer 🙂
Liza, as a general rule, an industry-wide prohibition is unenforceable in Texas. However, whether a certain restraint in the agreement is industry-wide depends on both the language of the agreement as well as the type of work the company and the restrained employee engaged in.
I have quit my job as an ER physician, The Non compete Agreement covers several counties in Texas. Employer has facilities in those counties. I will not be able to work in those counties for next 2 years. In order to find a job I will have to move out of Texas. Question is how they are allowed to cover such a large geographical area.
Neil, whether a non-compete is enforceable depends on many facts. It’s impossible to answer your question without knowing where you worked, what was the arrangement between your employer and the hospitals, the specific language of the agreement, and many other factors that could affect the enforceability of your agreement. If you believe that your non-compete will force you to move to another state, then I suggest that you seek legal advice based on your specific facts. You can call me at (214) 939-4458 to set up a consultation.
I worked briefly for an educational franchise company part time for about 3 months a year ago today. I remember signing a non compete agreement on the hire date that stated I could not compete after I leave the company for 2 years and within 20 miles of where I provided work for them. I’ve had my own company in the works now for 2 years and only took on work for them briefly to gain some additional experience in the field. I am now looking to start business operations but realize that there are no prospects anywhere outside of the 20 mile radius. Is it in conflict for me to promote my business (that has a similar service) with different clients (clients they have not had before)? I spoke to a lawyer in the past 8 months who said the non compete agreement would likely be nullified since I did not learn any trade secrets or specialized educational instruction training other than process.