In Texas, courts can rewrite non-compete agreements to make them more reasonable. This process is called “reformation.” There are certain statutory limitations on when, how, and to what extent the courts can engage in that process. Plus, considering that the reformation can be requested only in a pending lawsuit, it is not a cheap remedy for making an overbroad non-compete agreement enforceable.
Recently, a federal district court clarified that reformation cannot be used to cure major defects in a poorly-written non-compete agreement. Specifically, reformation is not available where a key term of a non-compete agreement is missing from the document entirely. In this case, the non-compete did not contain a temporal limit, i.e. it was not limited to a particular time period. The court refused to reform the agreement and dismissed the case explaining the rationale for its decision as follows:
It is the Court’s view that it is empowered only to reform existing terms. Where the Agreement lacks a critical term, such as a time limitation, placing a time limitation in the Agreement is to rewrite the Agreement. The Agreement lacks an unenforceable provision that the Court can revise; therefore, reformation is impermissible.
CONCLUSION: Texas employers seeking to enter into non-compete agreements with their employees should make sure such agreements meet the requirements of the Texas Covenants Not to Compete Act, as a failure to meet such requirements can prove to be fatal to an enforcement action. The strategy of drafting overbroad non-compete agreements and then relying upon courts to fix or re-write them is an expensive way of enforcing non-competes, and it may not work in those cases where the agreement is missing a key term.
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.