Are Non-Competes Enforceable in Texas?
Non-compete agreements, also called non-competition agreements, non-competes, or covenants not to compete, restrict an employee or officer’s right to compete with their employer after leaving the company. They are often included in employment contracts or offers. Non-competes are intended to protect companies from the risk that an employee will quit and work for a competitor, taking intellectual property, company secrets, and customers to the competition. Non-competes are strictly regulated because they are seen as an impediment to free commerce and have the potential to be unduly harmful both to the free market and to individuals subject to the non-compete. In Texas, non-competes may or may not be enforceable depending on the nature of the agreement. Continue reading to learn about how non-compete clauses operate under Texas law, and call an experienced Houston business lawyer for help with a Texas business law matter.
When Are Non-Competes Enforceable in Texas
Texas law generally prohibits any “contract, combination, or conspiracy in restraint of trade or commerce.” A provision in an employment contract that restricts an employee or officer’s freedom to work for another company in the same industry would seem to fit squarely within that prohibition. However, Texas law allows for exceptions to the general rule in order to permit non-compete agreements under certain circumstances.
Pursuant to Texas law, a non-compete agreement is permissible and enforceable so long as the agreement satisfies these criteria:
- The non-compete is ancillary to or part of an otherwise enforceable agreement
- The non-compete is reasonable in time, geography, and the scope of the activities to be restrained
A non-compete must be reasonable and no more restrictive than necessary to protect the goodwill and business interests of the employer. Based on these criteria, to get a court on board with enforcing the non-compete, the employer must generally show:
- The non-compete clause will not place an unreasonable burden on the employee’s ability to practice their profession
- The court’s failure to enforce the non-compete clause would cause harm to the business
Evaluating the Reasonableness of a Non-Compete
When considering whether to enforce a non-compete, courts focus on whether the clause is reasonable in geography, time, and scope. There are few bright-line rules, meaning that the enforceability of a given non-compete will depend on the nature of the business, the industry, the employee, the work the employee was doing, and the specifics of the non-compete agreement.
Concerning geography, typically non-competes must be restricted to the areas where the employee actually worked for the company and where the employer had business relationships. A restriction on the industry nationwide or globally is unlikely to be enforced. Limitations to the city or county, or, depending on the industry, a particular part of the city, may be necessary to keep the non-compete enforceable.
The limitation must also be reasonable in terms of duration. A 20-year limitation on an employee working for any competitor is likely to be thrown out. Restrictions that last only a few years have a much better shot at being enforceable. Whether an agreement is reasonable in duration depends on the nature of the work the employee did for the business, how long the employee worked there, the nature of the market, and other factors.
A non-compete must also be restricted in terms of the scope of the activities to be restrained. A non-compete could not, for example, prevent a salesperson from engaging in any and all types of sales, or likely in activities unrelated to sales even within the same industry. Restrictions on working with customers the employee developed while at the previous employer are likely to be enforceable, while restrictions on working with new customers are more difficult to enforce. Restrictions on working for a direct competitor may be enforceable, so long as the non-compete is otherwise reasonable in terms of time and geography.
If you need legal assistance with a Texas business law matter, contact the qualified and detail-oriented Texas business law attorney Leigh Meineke at the Houston offices of Stephens | Domnitz | Meineke PLLC by calling 832-706-0244.