- April 1, 2000
- Posted by: zbplaw
- Category: Articles, Tips
Whether it is the desire to be their own boss or the longing to pursue their dreams, many workers today leave their employers to start their own business. Although this is commendable, in some cases, it can negatively affect the former employer, particularly when the employee’s new business is in the same line of business as their former employer.
Fortunately, employers have the ability to limit the ability of their employees to take the skills and inside knowledge learned on the job and use it to compete against the employer through non-compete agreements (also called covenants not to compete). Although non-compete agreements were once heavily disfavored under law, today they may be enforced in Texas, provided that they are drafted carefully and thoughtfully.
Non-compete agreements in Texas
Under Texas law, non-compete agreements are governed by statute under the Business and Commerce Code. Under the statute, non-compete agreements are enforceable if it:
Is reasonable with regard to geographic limitations, time and scope.
Under this restriction, non-compete agreements will not be considered valid and enforceable if they restrict the employee from competing in an unreasonably large geographic area or for a lengthy period of time. What is reasonable in terms of geographic area depends on the surrounding circumstances (e.g. nature of business or population density of area). However, courts often find that an agreement that limits the restriction to the territory that the employee operated within while he or she was with the employer is reasonable.
Whether a time restriction is reasonable also depends on the surrounding circumstances. In deciding whether the time restriction is reasonable, courts often take into account whether the interests that the agreement was designed to protect still exist. Courts may also take into account the geographic scope of the agreement In general, the greater the geographic scope (assuming that the scope is reasonable), the longer the agreement may be in effect.
In addition, the scope of the restrictions must be reasonably related to the activities that the employee performed during his employment. For example, it would not be reasonable for a non-compete agreement to forbid an employee to open a paper supply business, if the employee had previously worked for the employer as an accountant.
Is necessary to protect a legitimate business interest.
Under this provision, non-compete agreements are not enforceable if they do not protect a legitimate business interest. Texas courts have held that legitimate interests include trade secrets, goodwill and other confidential or proprietary business information. However, the fact that the employer trained an employee at great expense does not constitute a “legitimate interest” under Texas law.
Contains restrictions that are no greater than is necessary to protect the legitimate business interest.
This provision requires the restrictions in non-compete agreements to be only be as strong as needed to be effective in protecting the employer’s legitimate business interest. For example, the agreement may not punish a departing employee by withholding bonuses earned in addition to the restrictions of the agreement.
An attorney can help
If you are considering maintaining the competitive advantage of your business through non-compete agreement, it is advisable to first consult with an experienced business law attorney, as a vague or poorly drafted agreement can mean that the agreement is unenforceable. An attorney can ensure that the agreement is enforceable and tailor-made for the needs of your business.