Are Non-Compete Agreements Enforceable in Texas?
Non-competition agreements, sometimes called restrictive covenants or covenants not to compete (“non-competes”), will be enforced by Texas courts only if they meet certain requirements. However, in practice the current Texas Supreme Court seems to favor the enforcement of non-competes.
Limitations and Requirements
In Texas, a non-compete must
(1) be ancillary to some other enforceable agreement (meaning it has to be connected to some other contract);
(2) protect a “legitimate business interest”;
(3) have “reasonable” limits on the scope of the employee’s activities that will be restrained;
(3) have “reasonable” geographic limits; and
(5) have “reasonable” time limits.
Something like protecting the employer’s proprietary information (like trade secrets, pricing policies, blueprints, or even employees’ specialized knowledge and training) or relationships with customers would likely be considered a legitimate business interest.
The scope of the activity to be restrained refers to what the non-compete can prevent you from doing. Limitations are probably reasonable if they are no broader than the employer’s actual business or, if the company is involved in many areas of business, no broader than the kind of work that you did for it.
When it comes to determining if the geographic scope or duration of a non-compete are reasonable, a few rules of thumb apply. A non-compete that covers the entire world or country likely goes too far. One that covers one or more states may be unreasonable if the employee had no duties covering an area that large. By contrast, county-wide restrictions are likely reasonable as long as they cover counties where the employer does “significant” business. Likewise, city-wide restrictions are usually reasonable. Restrictions based on market area or mileage may be unreasonable if they go beyond the area where you worked. Generally speaking, a non-compete lasting more than five years or for longer than the time you actually worked there has an unreasonable duration. By contrast, a non-compete lasting less than two years likely would be enforced.
How Non-Compete Agreements can be Used
Your employer may try to enforce a non-compete by seeking a court-ordered “injunction” to force you to stop working for a competitor. They could also try to get money damages from you if you violated the non-compete. In addition, they could just use the non-compete as leverage against you, since potential employers may be reluctant to hire you if they find out there is a possibility you would be prohibited from working for them due to a non-compete.
Resolving Non-Compete Agreements
You may try to negotiate with your employer to reduce the scope, geographic limits, and time limits of a non-compete on the front end, before signing it. However, an employer may require you to sign a non-compete as a condition of employment.
Even after signing a non-compete, if you and your employer come to disagree about what it actually prohibits, one avenue of relief is to seek a declaratory judgment. A declaratory judgment action involves you asking a court to determine what the language of the non-compete means or what parts can be enforced.
Resisting Non-Compete Agreements
If your employer tries to enforce a non-compete that is not actually enforceable, and their actions cause you harm such as the loss of a job, you may be able to bring a claim against your former employer for some form of “tortious interference” in your business relationships.
Disclosure and Confidentiality
Depending on the wording of any non-competes or confidentiality agreements you signed, you may be prohibited from using information you learned in your past employment, such as sales contacts, at a new job. However, a former employer generally cannot prohibit you from using publicly available information or contacts you established prior to working for them.