Tag: Texas non-compete lawyer

Top 5 Non-Compete Cases in Texas in 2018

by Leiza Dolghih, posted in Employment Agreements in Texas, Law, Non-Compete Agreements, Non-Compete Agreements in Texas, Texas Employment Law, Trade Secrets

Top5Unlike many other states around the country, Texas did not see any drastic changes in its non-competition laws in 2018.  However, out of a 100 + cases involving non-competition disputes, the following handful stand out: 

  1. Thoroughbred Ventures, LLC v. Disman, Civil Action No. 4:18-CV-00318, 2018 U.S. Dist. LEXIS 133697, at *10 (E.D. Tex. 2018).*

Held: A non-disclosure agreement that prohibits employees from using, in competition with the former employer, the general knowledge, skill, and experience acquired in former employment is similar to a non-compete clause and must meet the requirements of the Texas Covenants not to Compete Act. 

Why it made the top five list: This is the first case in Texas to hold that certain non-disclosure clauses may have to meet the same requirements as non-competition agreements.  

Quote: “An agreement prohibiting a former employee in this field from disclosing his acquaintances would therefore be a non-competition agreement in disguise, and would be unenforceable as such. Some of the other categories of confidential information-for example, financial information-might present different problems, but the present motion does not accuse the Former Employees of disclosing anything other than information related to Clients and Contractors.’”

2. Fomine v. Barrett, No. 01-17-00401-CV, 2018 Tex. App. LEXIS 10024, at *8 (App.—Houston [1st Dist.] Dec. 6, 2018)

Held:  A non-competition clause that covers a geographic area where an employer plans to extend its business in the future, without any concrete plans to do so (i.e. just the owner saying s/he is going to expand), is geographically overbroad.

Why it made the top five list: Employers will often include in their non-competition agreements areas of future business expansion.  This case demonstrates that unless the plans for future expansion are definite,  the employers should stick with the area where the business currently operates or where its employees currently work. 

3. Ortega v. Abel, No. 01-16-00415-CV, 2018 Tex. App. LEXIS 6690, at *11 (App.—Houston [1st Dist.] Aug. 23, 2018).

Held: The right of first refusal in the asset purchase agreement, which prohibited a party from operating a business without first offering another party the right to be a partner in the business was a “restraint of trade,” subject to the Texas Covenants Not to Compete Act. 

Why it made the top five list:  This case demonstrates that Texas Covenants Not to Compete Act applies to any restraint of trade, not just the plain vanilla non-competition and non-solicitation agreements in the employment or sale of business context. 

4. Accruent, LLC v. Short, No. 1:17-CV-858-RP, 2018 U.S. Dist. LEXIS 1441, at *12 (W.D. Tex. 2018).

Held: A non-competition clause that prohibits employees from competing with their employer anywhere where the employer does business (as opposed to where the employees worked) can be enforceable against those employees who had extensive access to the company’s confidential information.

Why it made the top five list:  Generally speaking, an employer can only prohibit an employee from competing in the area where the employee worked. However, this case creates an exception to the rule where employees have extensive access to and “intimate knowledge” of highly confidential information of their employer. 

Quote: “Because Short was Lucernex’s senior solution engineer, he now has an “intimate knowledge of all Lucernex product functionality.” Short knows about Lucernex’s unreleased software and its roadmap for future product development. He knows the product functionalities requested by Lucernex customers. He knows Lucernex’s business development plans, its market research, its sales goals, and its marketing strategy. . . Given everything Short knows about Lucernex and its products, customers, and prospects, Short can help a competitor take business from Accruent in any state or country where Lucernex did business. It is therefore reasonable for the noncompete provision to extend to every state or country in which Lucernex did business.”

5. D’Onofrio v. Vacation Publ’ns, Inc., 888 F.3d 197, 212 (5th Cir. 2018)

Held: A non-competition clause that prohibits an employee from working for competitors of the former employer “in any capacity,” without geographic or client-based boundaries, is unenforceable. 

Why it made the top five list:  The Fifth Circuit confirmed, yet again, that an industry-wide restraint on a departing employee, which is not limited to a certain geographic area or the clients that the employee dealt with, is unenforceable under the Texas Covenants Not to Compete Act.     

*Keep in mind that any decisions mentioned in this post may be appealed and their holdings may be overruled.  Therefore, employers should always consult with a qualified employment lawyer to determine the current status of the law applicable to their particular dispute.

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.

How Enforceable is a Non-Compete? and Other Top Google Questions Answered

by Leiza Dolghih, posted in Non-Compete Agreements, Texas Employment Law, Texas Legal News

GoogleAccording to Google, the top four questions people want answered about non-compete agreements* are: (1) How enforceable is a non-compete? (2) Is a non compete valid if you are fired? (3) Do non-compete agreements hold up? and (4) How long does a non compete last?  I hear a lot of the same questions in person, so here are the answers:

1. How enforceable is a non-compete?  Generally speaking, non-compete agreements are enforceable.  There are only three states in the country that outright ban non-compete agreements – California, Oklahoma, and North Dakota. Additionally, some states now prohibit non-compete agreements for certain professions or employees who earn less than a certain amount per year or per hour.  The rest of the states will enforce some form of a non-compete agreement as long as it is reasonable.  

Now, if the real question is “How enforceable is my non-compete agreement?”, the answer to that depends on several factors, including the following: (1) the state in which the employee works; (2) the industry in which s/he works; (3) the precise language of the non-compete clause; (4) the responsibilities and duties of the employee at the company; (4) how long the employee has worked for the employer; (5) where the employee is going to work and what will be his/her duties and responsibilities there; (6) what the employee received in exchange for signing the non-compete agreement; (7) whether the employer performed his/her obligations under the agreement; and several other factors.  

2. Is a non-compete valid if you are fired? Usually, yes. However, some states have recently passed laws or have attempted to pass laws that would make non-compete agreements void if an employee was fired without cause or terminated as part of the reduction in force. Additionally, some employment contracts may specify when an employee may be fired, in which case, if the employee is fired in violation of their contract, that may make their non-compete clause unenforceable.  The norm across the United States, however, remains that the reason for separation from employment does not affect the enforceability of  a non-compete clause.  

3.  Do non-compete agreements hold up? When written correctly, yes.  If a non-compete agreement is written to comply with the appropriate state laws, is reasonable, and the employer has given its employees the required consideration in exchange for their promise not to compete, the non-compete agreement is likely to hold up in court, which means the court will order an employee to comply with it.   

However, similarly to the question one above, whether your particular non-compete agreement will hold up in court, depends on many factors, including where in the country and in which venue the employer will attempt to enforce it. 

4. How long does a non-compete agreement last? As a general rule, non-compete agreements that last two years or less are considered reasonable.  However, some states have specific provisions regarding the length of non-compete agreements that set a shorter period of time, and other states allow for much longer periods.  Additionally, employee-specific circumstances may make even a 2-year non-compete agreement unreasonable and, therefore, not enforceable in certain cases. 

*NOTE: Different rules may apply to non-compete agreements that are not employment-related, i.e. non-compete agreements that relate to the sale of business. 

BOTTOM LINE: Different states have different rules about what non-compete agreements they will enforce. Additionally, whether a particular non-compete agreement is enforceable depends on the (1) language of the agreement and (2) the particular circumstances of the employee bound by that agreement.  

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 or fill out the form below.

What Are Acceptable Non-Solicitation Restraints for Sales Employees?

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Legal News

maguire_primIn Texas, it is common for sales employees in many industries to have a non-solicitation clause in their employment agreements, which prohibits them from soliciting company clients for a certain period of time after they leave the company’s employment.  Such non-solicitation clauses are enforceable under the Texas Covenants Not to Compete Act as long as they are reasonable and supported by proper consideration.  What is “reasonable,” however, is often a major point of contention between the company and the sales employees or such employees’ new employers.  

A recent opinion from the Thirteenth Texas Court of Appeals provides a good illustration of what is not a reasonable non-solicitation restraint.  In Cochrum v. National Bugmobiles, Inc., a trial court entered an injunction against a pest control technician who left one pest control company to work for another. The injunction prohibited Cochrum from soliciting business from any of National Bugmobiles’ 19,700 customers on its client list compiled over the course of eight or nine years during which Cochrum worked there, even though the employee testified that he only serviced approximately 300 customers during his tenure with National Bugmobiles.

Cochrum argued that he cannot in good faith comply with the injunction because he has no idea who the 19,700 customers are.  The company argued that in order to comply with the injunction, he should ask any prospective customer whether they received services from National Bugmobiles, and if they had, refrain from soliciting their business.  While the trial court was satisfied with this approach, the Court of Appeals rejected it calling it “simplistic” and “fatally vague” in that the injunction order failed to identify the customers that Cochrum was prohibited from soliciting, as required under Texas law.

Thus, as far as the non-solicitation requirements were concerned, the Court of Appeals modified the temporary injunction by striking down the following language for being too vague:

  • Diverting any business whatsoever from Bugmobiles by influencing or attempting to influence any of the customers of Bugmobiles whom Cochrum may have dealt with at any time or who were customers of Bugmobiles on February 13, 2017 or had been customers of Bugmobiles thereto;
  • Servicing any client that was under contract with or was being serviced by Bugmobiles as of February 132017 by directly or indirectly owning, controlling or participating in the ownership or control of, or being employed by or on behalf of, or engaging in any business which is similar to and is competitive with the business of Bugmobiles.

Instead, the Court of Appeals left the following much more specific language in the injunction order prohibits the technician from:

  • Diverting any business by soliciting or attempting to solicit any of approximately 300 customers of Bugmobiles whom Cochrum dealt with at the time of his resignation from Bugmobiles on February 13, 2017.

TexasBarToday_TopTen_Badge_VectorGraphicCONCLUSION: While a non-solicitation clause that prohibits a sales employee from soliciting all company customers may sometimes be justified, most of the time it is much more reasonable to limit the non-solicitation restraint only to the customers and prospective customers with whom the sales employee directly interacted rather than every customer in the company’s database.  This is true, especially when the entire customer list is much larger than the subset of customers with whom the sales person dealt.  

When enforcing a non-solicitation clause, a company should always consult with an attorney to determine the scope of the enforcement given a particular sales employee’s area, the circumstances surrounding a his/her departure, and the size of the company customer list.

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 or fill out the form below.

A Texas Court of Appeals Explains Employees’ Fiduciary Duties in Texas

by Leiza Dolghih, posted in Employment Agreements in Texas, Employment Law, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Small Business Help, Texas Employment Law, Texas Legal News

Employees Duty of LoyaltyThe Eighth Court of Appeals recently analyzed the question of whether regular non-executive level employees in Texas owe fiduciary duties to their employers and answered that question with a resounding “yes.” While the scope of the rank-and-file employees’ fiduciary duties may not be as broad as those of a CEO or CFO of a company, they still owe a duty of loyalty to their employer and may not:

  1. appropriate company trade secrets
  2. solicit away the employer’s customers while working for the employer
  3. solicit the departure of other employees while still working for the employer
  4. carry away confidential information.

Employees can, however, plan to go into competition with their employers and may take active steps to do so while still employed, but cannot cross the line of preparation into actual competition until after they leave (assuming no post-employment restrictive covenants).

In Heriberto Salas, et al. v. Total Air Services, LLC, Salas opened and operated a company that directly and actively competed with his employer – Total Air Services – while still working for the employer.  He submitted bids on the same jobs as his employer through his own company, distributed his company’s business cards while giving out flyers for Total Air Services, and solicited Total Air Services’s customers to do business with his own company.   

Bottom Line:  Even those employees who do not have non-compete or non-solicitation agreements with the employer still owe a duty to the company not to divert business or use the company’s confidential information to benefit themselves while drawing a paycheck there.  

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 or fill out the form below.

Top 5 Non-Compete Cases in Texas in 2017

by Leiza Dolghih, posted in Confidentiality Agreements in Texas, Employment Agreements in Texas, Employment Law, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Employment Law, Texas Legal News

yearendAlthough the weather outside suggests otherwise, it is, indeed, December – a time traditionally reserved for reflection upon the year’s achievements.  So, let’s take a look at the top five most important non-compete cases in Texas in 2017.

  1. BM Med. Mgmt. Serv., LLC v. Turner (Tex. App.–Dallas, Jan. 10, 2017)*

Held: The employer failed to show a probable, imminent, and irreparable injury in breach of a non-compete case, as the employee had returned his computer and testified that he did not possess any papers or electronic files related to the employer’s business.

Why it made the Top Five list:  Early in each non-compete breach / trade secrets theft case, an employer may have an opportunity to examine the departed employee’s devices and confirm that its confidential information is no longer there.  This case demonstrates that taking advantage of that opportunity may result in the denial of a temporary injunction as it eliminates the probability of imminent and irreparable injury since the employee no longer has the employer’s confidential information.

2. In re Pickrell (Tex. App.–Waco, April 19, 2017)

Held: The employer failed to produce evidence necessary to obtain a Rule 202 pre-suit deposition to investigate whether its former employee had  honored his non-compete obligations.

Why it made the Top Five list:  A party contemplating a lawsuit in Texas may sometimes depose the potential defendant to determine if it has a legal claim against him/her.  This procedure is called a pre-suit or Rule 202 deposition.  In re Pickrell shows that an employer cannot depose a departed employee for the purpose of investigating whether he/she honored his non-compete agreement based on the employer’s suspicion that the employee may be violating the agreement solely because he is now working for a competitor. 

3. Sanders v. Future Com., Ltd. (Tex. App.–Fort Worth, May 18, 2017)

Held: Requiring an employee to repay training costs is not a covenant not to compete and is not subject to the requirements of the Texas Covenants not to Compete Act.

Why it made the Top Five List: This case establishes that Texas employers can deduct reasonable training expenses out of employees’ salaries if they leave before the employer is able to recoup its training costs.  Any overreaching, however, by employers may result in a violation of the Texas Covenants not to Compete Act.  See, for example, Rieves v. Buc-ee’s Ltd. (below). Additionally, any deductions need to be structured to comply with other laws, such as the Fair Labor Standards Act, and must be verifiable and not speculative. For more information, look here.

4. Rieves v. Buc-ee’s Ltd., (Tex. App.–Houston, Oct. 12, 2017)

Held: Requiring an employee to repay a portion of her salary upon termination is a “restraint on trade” in violation of the Texas Covenants Not to Compete Act. 

Why it made the Top Five List:  The Court’s decision shows that any provision in the employment agreement that restricts employee’s mobility must be analyzed through the lens of the Texas Covenants Not to Compete Act, not just non-compete clauses. For more information, look here.

5. Horizon Health Corp. v. Acadia Healthcare Co. (Tex.  2017)

Held: The employer failed to establish that the departed employee’s actions caused it lost profits because it could not prove that the customer that went with the departed employee would have signed a contract with the employer. 

Why it made the Top Five List:  Texas courts require that a company seeking damages based on lost profits produce evidence establishing that prospective customers would have done business with the company absent the defendant’s misconduct.  In this case, the company failed to show that a customer that it claimed it lost due to the departed employee’s actions would have signed a contract with that company had it not signed with the departed employee’s new company.

*Keep in mind that any decisions by the Texas Courts of Appeals may be appealed to the Texas Supreme Court, which may ultimately disagree with their findings.  Therefore, employers should always consult with a qualified employment lawyer to determine the current status of the law applicable to their particular dispute.

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 or fill out the form below.

 

 

Buc-ee’s Repayment Provision in the Employment Agreement Is Declared Unlawful, Likened to Indentured Servitude

by Leiza Dolghih, posted in Employment Agreements in Texas, Employment Law, Non-Compete Agreements in Texas, Non-Solicitation Agreements in Texas, Texas Business Law, Texas Employment Law, Texas Legal News

Buc-ees 2Last month  I wrote about how Texas employers can require employees to repay the employers’ training expenses related to those employees, even if that means repaying an equivalent of 1/3 of an employee’s salary.   I culminated my article cautioning the companies to make sure that their repayment requirements in the employment agreements do not violate the Texas Free Enterprise and Antitrust Act of 1983. 

Later the same week, the Houston Court of Appeals found that Buc-ee’s did just that by requiring its assistant manager to repay more than $66,000 in salary for leaving her at-will job to go work for another company, which was not even a competitor of Buc-ee’s. 

Here’s a quick look at what Buc-ee’s did, what the Court of Appeals thought of it, and the lessons that Texas employers can take away from this case.

Buc-ee’s’ Employment Agreements

In 2009, Rieves came to work as an assistant manager for Buc-ee’s. The wages arrangement was such that 70% of her salary would be paid on hourly basis and 30% would be paid in flat fee, translating into $14 an hour and a fixed monthly bonus of $1,528.67 (the “Additional Compensation”).

This 2009 Employment Agreement specifically said that Rieves was an “at-will employee” but also stated that she was “required to work” for Buc-ee’s a minimum of five years and had to provide the employer with a 6-month written separation notice.  If she failed to meet these two requirements, regardless of the reason, she had to repay all of the Additional Compensation.

In 2010, Rieves entered into a new employment agreement with Buc-ee’s that contained similar requirements (4 year term and 6-month separation notice) and stated that if Rieves left before 2014, she had to repay a portion of her salary under the 2010 Employment Agreement and the Additional Compensation under the 2009 Employment Agreement. Thus, under the 2010 Employment Agreement, the longer Rieves worked for Buc-ee’s, the more of  her salary she would have had to pay back. 

The Court of Appeals’ Analysis

In looking at the employment agreements, the Court first and foremost noted that Rieves was an “at-will employee,” which, under the long-standing doctrine in Texas, meant that her employment could be terminated by her or Buc-ee’s for good cause, bad cause, or no cause at all. 

Furthermore, the repayment provisions in Rieves’s employment agreements imposed a severe economic penalty on her if she exercised her right as an at-will employee to leave Buc-ee’s.  Therefore, these provisions had to comply with the Texas Covenants not to Compete Act in order to be enforceable.  They did not.

The repayment provisions penalized Rieves even if Buc-ee’s fired her without a cause and they were not related to Buc-ee’s legitimate business interest because they penalized Rieves even if she went to work for a company that was not Buc-ee’s competitor.  Therefore, the repayment provisions were an unfair restraint of trade in violation of the Texas Free Enterprise and Antitrust Act and were not enforceable.

The Lessons for Texas Employers

TexasBarToday_TopTen_Badge_VectorGraphicWhile Texas recognizes the freedom of parties to contract, employers cannot enter into contracts that are illegal.  Under the Texas Free Enterprise and Antitrust Act, “every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.”  Non-competition agreements that are reasonable and are designed to protect a legitimate business interest are an exception to the rule.  Any other restraint in an employment agreement that prohibits an at-will employee from leaving his or her current employer or restricts such employee’s ability to sell his or her skills in the marketplace is likely to violate the Texas Free Enterprise and Antitrust Act.

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.

Can an Employee Prepare to Compete with His Employer While Still on the Employer’s Payroll?

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements, Non-Compete Agreements in Texas, Non-Solicitation Agreements, Non-Solicitation Agreements in Texas, Texas Business Law, Texas Legal News

non-compete-agreement-lawyer-philadelphiaIn Texas, employees have the right to resign from employment and go into business in competition with their employers (absent a non-compete agreement). There is nothing legally wrong in engaging in such competition or in preparing to compete before the employment terminates.

Thus, as a general rule, an employee can prepare to compete with the employer while still on the employer’s payroll.   There are several caveats to that, however:

  1. Employees cannot use their employers’ resources – such as company-provided computers – to engage in the preparatory activities.
  2. Employees cannot prepare to compete while on the clock.
  3. Employees cannot use their position within the company and their knowledge of the company’s trade secrets and confidential information to divert business to their new company or to create business opportunities for their new business.

Where an employee is discovered to have engaged in some activities in anticipation of his new endeavor while still working for his old employer, the question often arises whether he was preparing to compete or actually competing with the employer.

For example, registering a company with the Secretary of State is a clearly preparatory activity.  However,  advertising the formation of the company on social media or creating a website announcing that the company will be opening soon can be viewed as a competitive activity.  In illustration, the Pennsylvania Superior Court recently held that a company which set up a Facebook page announcing that it was going to open a veterinary clinic “soon” and provided a link to a map showing the location of the future clinic was not merely “preparing to compete” but was actually competing and soliciting customers.  The court explained that:

Upon review of that document, it is obvious that, collectively, the [Facebook] posts, “coming soon” announcement, and map directions, are tantamount to a solicitation of past or future clients in contravention of the non-compete clause. The resounding purpose of the Facebook page, and the attendant communications therein, was to inform the followers of the page, including former clients, that he intended to open a new clinic and to keep them apprised of his progress. There is but one reason for O’Laughlin to create the O’Laughlin Veterinary Services Facebook page and maintain contact with former clients: to solicit their business. 

TexasBarToday_TopTen_Badge_VectorGraphicBOTTOM LINE FOR EMPLOYERS: While employees have the right to prepare to compete before their employment is terminated, they cannot cross the line and actually compete with their employers.  If you learn that your employee is announcing on social media or online that he or she is getting ready to go into competition with your company, it might be a good time to call an employment lawyer.

Leiza represents companies in business and employment litigation.  If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Non-Compete Agreements – Good or Evil? The US Government Says They Are Both.

by Leiza Dolghih, posted in Employment Agreements in Texas, Non-Compete Agreements in Texas, Non-Solicitation Agreements in Texas, Texas Business Law, Texas Employment Law, Texas Legal News

kkIn March 2016, the Office of Economic Policy of the U.S. Department of the Treasury issued a report titled “Non-Compete Contracts: Economic Effects and Policy Implications.”  According to the report, an estimated 18% of all workers, or nearly 30 million people, are covered by non-compete agreements.  The purpose of the report was to determine the economic effects of non-competes.

According to the Department of Treasury, the benefits of non-competes are:

(1) Non-competes are sometimes used to protect trade secrets, which can promote innovation.

(2) By reducing the probability of worker exit, non-competes may increase employers’ incentives to provide costly training.

(3) Employers with especially high turnover costs could use non-competes to match with workers who have a low desire to switch jobs in the future.

The downside of non-competes includes the following:

(1) employees’ bargaining power is reduced after they sign non-competes, possibly resulting in wage stagnation;

(2) sometimes, because of non-compete constraints, employees are force to leave their occupations loosing the benefit of training and experience they had gained in their fields;

(3) reduced job turnover may lead to labor market stagnation;

The report concluded that non-competes are often used by employers in non-transparent ways:

(1) Many workers do not realize when they accept a job that they have signed a non-compete, or they do not understand its implications.

(2) Many workers are asked to sign a non-compete only after accepting a job offer. One lower-bound estimate is that 37 percent of workers are in this position.

(3) Many firms ask workers to sign non-competes that are entirely or partly unenforceable in certain jurisdictions, suggesting that firms may be relying on a lack of worker knowledge. For instance, California workers are bound by non-competes at a rate slightly higher than the national average (19 percent), despite the fact that, with limited exceptions, non-competes are not enforced in that state.

Non-Competes and Trade Secrets

Only 24 percent of workers report that they possess trade secrets. Moreover, less than half of workers who have non-competes also report possessing trade secrets, suggesting that trade secrets cannot explain the majority of non-compete activity.

Non-competes are common among workers who report lower rates of trade secret possession: 15 percent of workers without a four-year college degree are subject to non-competes, and 14 percent of workers earning less than $40,000 have non-competes. This is true even though workers without four-year degrees are half as likely to possess trade secrets as those with four-year degrees, and workers earning less than $40,000 possess trade secrets at less than half the rate of their higher-earning counterparts.

Available evidence suggests that workers with a low initial desire to switch jobs are not more likely to match with employers who require non-competes.

In some cases, non-competes prevent workers from finding new employment even after being fired without cause; in such cases, it is difficult to believe that non-competes yield social benefits.

State Enforcement of Non-Compete Agreements

States vary greatly in the manner and degree to which they will enforce non-competes.

In some states, non-compete enforcement is determined by statute, while in others it is determined exclusively by case law. 

Some states refuse to enforce non-competes, or refuse to enforce non-competes that contain any unenforceable provisions (“red-pencil” doctrine), although a majority of states will modify overbroad non-compete contracts to render them enforceable (“bluepencil” and “equitable reform” doctrines).

Texas Non-Compete Agreements

In Texas, non-compete agreements are governed by a statute and must meet certain requirements to be enforceable.  When drafted properly, they are enforceable. However, a lot of times, they are not drafted correctly, which means that they would not hold up in court.  You can see my previous posts regarding Texas non-competes here, here and here. 

The Report Recommendations

Employers should increase transparency in the offering of non-competes; use enforceable non-compete contracts; and provide “consideration” to workers bound by non-compete contracts in exchange for both signing and abiding by non-competes.

Takeway: According to the U.S. Department of Treasury’s report, non-competes and how they are being used by employers across the country present some problems for employees and the labor market in general. Considering that every 5th person is under a non-compete restrictions, these problems are wide-spread. Employers and employees in Texas will both benefit from reasonable and enforceable non-compete agreements. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issue. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.