What is a Non-Compete Agreement?

A non-compete agreement or a non-compete clause prohibits employees from working for their employers’ competitors within a certain geographic area, for a certain period of time after they leave their employer.

The geographic area may be limited to a particular radius around a certain location where the employee worked or where that employee’s company operated. Alternatively, the geographic restraints can include certain counties, states, or even be nationwide or worldwide.

While the language of non-compete clauses varies widely, depending on who drafted them, here are a couple of examples of such clauses:

For C-Level Employees:  Unless otherwise agreed in writing by the Company, the Executive will not, directly or indirectly, in any capacity (including as director, officer, employee, stockholder, partner, owner, consultant or advisor) provide services of any kind, anywhere in the world, until eighteen (18) months following the end of the Executive’s employment by the Company (“Restricted Period”), to any Issuer of MasterCard, VISA, American Express, Discover Card or any other type or credit card or charge card, any bank or other lender which makes consumer loans of any kind, any insurance company or agency which issues or markets personal lines insurance policies, or any affiliate of any such entity. These services include, but are not limited to, services relating to (i) sales, endorsement, co-branding or similar agreements, (ii) product development and marketing, (iii) credit approval and collections, (iv) customer service, (v) funding or other treasury matters, (vi) loan portfolio acquisitions, mergers or other acquisitions, (vii) financial, legal or accounting matters, or (viii) acquisition of or advice or assistance to others to acquire the Corporation or the Bank or beneficial ownership of 10% or more of the Corporation’s Common Stock. In addition, the Executive agrees that during the Restricted Period, the Executive will not provide services to any affinity group or commercial organization, or any affiliate of such entity, relating to an affinity or co-branded credit card, consumer loan or personal lines insurance program with the Company or any other entity. The Executive agrees that these restrictions are reasonable.

For sales employees: For a period of one (1) year immediately following the termination of your employment, You will not, for yourself or on behalf of any other person or business enterprise, engage in any business activity which competes with the Company within ______ miles of the facility in which you were employed.

The time period for most non-compete agreements will typically range from 6 months to 2 years. Some agreements will say that the restriction period will be extended if the employee has engaged in activities in violation of the non-compete restraints during the restricted period specified in their agreement.

The language and the definitions used in a non-compete clause are very important as that is the first thing that a judge will look at when an employer tries to enforce a non-compete agreement against an employee.

Conclusion: Employers should use plain English, precise language to describe their non-compete restrictions, and employees should not sign an agreement unless they understand what restraints they are agreeing to, as these agreements are enforceable in Texas, when written correctly.

Leiza Dolghih is the founder of Dolghih Law Group PLLC.  She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.

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