In Part I, I described requirements for non-compete agreements in Texas. In Part II, I describe the common mistakes that employers make when it comes to non-compete agreements:
1. Not signing non-compete agreements with key employees. It seems like a no-brainer, but there are still a lot of companies out there that do not require their employees to sign any non-compete agreements. This is a mistake. A reasonable non-compete agreement can benefit both the company and the employees. A company is more likely to invest into training of its employees if it knows that they will not leave to work for a competitor as soon as the training is completed, and fair geographic restriction will not prevent employees from finding future employment.
2. Having restrictions that are too overbroad. Overreaching in non-compete agreements can backfire in that employees end up feeling like they have no choice but to violate them in order to make a living and courts are less likely to enforce such overbroad non-compete agreements.
3. Not having a legitimate business interest to protect. A Texas employer must share its confidential information or goodwill with an employee in order to create an enforceable non-compete agreement. There is no legitimate business interest in tying up employees with non-compete agreements if they perform tasks that do not involve specialized training, confidential information or goodwill of their employer.
4. Making all employees execute the same non-compete agreement. Requiring the same 2-year / 200-mile non-compete agreement for sales people, secretaries, and C-level executives raises a red flag that the company is simply trying to prevent competition and is not protecting a legitimate business interest. Employees that perform different tasks or serve a different purpose should have different non-compete restraints depending on what they do in the company.
5. Not providing a proper consideration. Different states require different types of consideration for non-compete agreements. In some states, just a promise of future employment is sufficient. In other states, an employer must pay money to an employee in exchange for the promise not to compete. Texas companies should make sure that their non-compete agreements are supported by the right type of consideration in the state where they plan to enforce the non-compete agreements.
6. Not providing new consideration. When asking an already-existing employee to sign a non-compete agreement, employers must provide new consideration for the agreement. For more information, see my previous post here.
7. Not enforcing non-compete agreements. Once proper non-compete agreements are in place, companies should make it a policy to enforce them. Otherwise, the agreements lose their effectiveness with employees, who quickly learn from co-workers that the company never enforces its contracts.
8. Not enforcing non-compete agreements fast enough. This is one of the gravest mistakes for companies in terms of consequences. The longer a company waits to seek a temporary restraining order against an employee who is violating his or her non-compete agreement, the more likely the court is to deny the restraining order because the company cannot show an “imminent” and “irreparable” injury. In other words, if the company has not tried to stop the bleeding, how bad could the bleeding really be and does the court really need to enter an emergency order?
9. Not providing confidential information. As mentioned above, a proper consideration for a non-compete agreement in Texas includes a company’s promise to provide confidential information to the employees signing the agreement. Companies, however, must deliver on that promise and actually provide such confidential information in order to make their non-compete agreements enforceable.
10. Not saving an electronic version of the signed non-compete agreements. Companies must make sure that they save an electronic signed version of their non-compete agreements in a location where employees cannot access and delete them.
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. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.