Is Your Non-Compete Agreement Enforceable?

stevecarelEvery state has its own rules about the enforceability of non-compete agreements, with many technical requirements, carve outs for certain industries like medical and technology, and various presumptions or public policy-driven rules regarding employers’ ability to limit competition from former employees.

Recently, I’ve been receiving a lot of inquiries from Texas employers or companies that are moving to Texas regarding: (1) whether non-compete agreements are enforceable in Texas?  (2) what types of non-compete agreements are enforceable in this state?  and (3) when should I enforce my non-compete agreement against a departed employee? Many of these companies already have non-compete agreements with their employees, but are worried about their enforceability in Texas courts. 

I have previously written about how to enforce non-compete agreements in Texas, here, here, and hereSo, the answer to the first question is a resounding “Yes, non-compete agreements are enforceable in Texas.”

The answer to the second question is that, generally, only non-compete agreements with reasonable geographic, time and scope restrictions are enforceable in Texas. 

Assuming a positive answer to the first two questions, the answer to the third question depends on the circumstances of a particular departed employee and the answer to the following questions:

  • What position is the employee in at your company? C-Suite? Sales? Another position that gives him or her access to sensitive information within the company?
  • What special skills the employee has and what specialized training the employee has received in that position? 
  • Is the company where the employee is going a competitor of your company?
  • What position is the departed employee going to take at his or her new place of employment? Is it the same or similar position to what he or she was doing at your company?
  • How likely is it that the employee will use the confidential information he learned while working for you at his new job?
  • What activities does your non-compete prohibit the employee from doing?
  • For how long?  Remember, it must be reasonable.
  • What area does it cover? Reasonableness is key. 
  • Did you provide the right type of consideration for the employee’s promise not to compete?
  • Do you have a non-solicit agreement that will protect your company without having to enforce the non-compete agreement?

All of these factors will come into play if you decide to enforce a non-compete agreement in Texas. Additionally, you will need to consider where to file the lawsuit, the evidence that you will need in order to obtain a temporary restraining order against the employee, and a host of procedural and discovery issues that come along with litigating a non-compete case. 

Bottom Line: Enforcing non-compete agreements is as much of a business decision as it is a legal one.  Having a non-compete agreement that is legally enforceable, allows you to decide whether it makes business sense to enforce it against a particular employee.  Without a legally enforceable non-compete agreement, however, the business reasons may not even matter. 

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries. If you are a party to a dispute involving a noncompete agreement in Texas, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Top 10 Mistakes Employers Make With Non-Compete Agreements

good-wifeWhile helping hundreds of companies enforce their non-compete agreements and advising many employees on how to get out of them, I noticed that most companies make the same mistakes when it comes to drafting and enforcing their non-compete agreements. In this post, I share the top ten mistakes that often end up costing business their clients, goodwill, and a ton of legal fees:

  1. Not signing non-compete agreements with 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 employees with non-compete agreements, and employees will still remain free to work in their chosen field after leaving the employer, subject to a reasonable geographic limit. 
  2. Having restrictions that are too overbroad. Overreaching in non-compete agreements can backfire in that employees feel like they have no choice but to violate them in order to make a living and courts are not likely to grant a temporary retraining order or a temporary injunction on a non-compete that is clearly overbroad. 
  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.  An hourly employee, such as a sandwich-maker or a mechanic, is not going to have access to any confidential information or specialized training.  Thus, most of the time, there would be no legitimate business interest in having such employees subject to a non-compete. Therefore, before asking an employee to sign a non-compete agreement, employers should ask, “What specific business interest am I trying to protect?”
  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 having new consideration.  When asking an already-existing employee to sign a non-compete agreement, employers must provide new consideration for such agreement.  For more information, see my previous post here.
  7. Not enforcing non-compete agreements. Once the 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 the agreements. 
  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 employee.  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 or take them.

BOTTOM LINE:  Spending some money at the front end of an employment relationship to make sure that the company is protected with a valid non-compete under Texas law can save a company ten times that amount in legal fees when the times comes to enforce the non-compete agreement.

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. For a consultation regarding a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.