In reviewing hundreds of non-compete agreements a year, sometimes I have to break the news to business owners that their non-compete agreements are not going to hold up in court and need to be rewritten. Typically, those agreements were drafted by the owners themselves, are outdated, or are taken from another jurisdiction, where the non-compete rules are different from Texas.
So, what are the top five mistakes I see with such agreements that make them unenforceable?
- A non-compete agreement that is missing a geographic restriction (i.e. “within state of Texas,” “within counties where the employer operates,” “within an X-mile radius,” etc.) is generally not enforceable in Texas.
- A non-compete agreement that is missing a defined time limit (e.g., “two years after the termination of employment,” etc.) is generally not enforceable in Texas.
- A non-compete agreement that describes a prohibited activity too narrowly and fails to capture the former employee’s activity that the employer now wants to stop is not going to be useful in court.
- A non-compete agreement that describes a prohibited activity too broadly so that it locks the employee out of an entire industry is generally not enforceable in Texas.
- A non-compete agreement that is missing a key required term (e.g., a buy out clause for physicians) is generally not enforceable.
As it happens, last year, a Texas business owner (not my client) attempted to enforce a non-compete agreement without a geographic restriction. At the injunction hearing before a district court judge, the owner asked the judge to reform, i.e., re-write, the non-compete agreement to include a 50-mile non-compete radius around the owner’s business. The district court judge denied the request to write-in the geographic area that was missing from the non-compete and denied the injunction. When the owner appealed, the Dallas Court of Appeals ruled that it had no jurisdiction to address the trial court’s decision. In essence, the owner attempted to enforce a non-compete without a geographic area and lost.
BOTTOM LINE: Businesses in Texas should make sure that their non-compete agreements are enforceable under Texas law, so that when the time comes to seek an injunction on the basis of a particular non-compete agreement, it actually holds up under the judicial scrutiny.
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.