It’s often said that employees are a company’s most valuable asset. Your Texas company likely has several key employees essential to running your operations. So management understandably wants to protect itself if one leaves for another job.
Historically, in Texas and elsewhere, companies have used non-compete agreements to temporarily restrict a key employee’s ability to compete directly against them. The law surrounding non-competes is quite complicated, so it is essential to seek qualified legal advice. The Texas employment attorneys at Structure Law Group can assist you in drafting, reviewing, and enforcing non-compete agreements to ensure that they meet all state law requirements.
Three Requirements in Texas
Section 15.50 of the Texas Business and Commerce Code allows for the enforcement of non-compete agreements under certain conditions. It is critical to note that agreements to restrain competition–including competition for employee services–is generally illegal in Texas. But Section 15.50 carves out an exception for “covenants not to compete” that meet the specified criteria.
Essentially, an enforceable non-compete agreement in Texas must meet three conditions:
- The non-compete is part of or ancillary to an otherwise enforceable agreement, such as an employment contract or a non-disclosure agreement.
- The non-compete provides adequate consideration for the employer and the employee.
- The restrictions contained in the non-compete are reasonable and do not impose a greater restraint than necessary to protect the goodwill or other business interest of the employer concerning the geographical area, time, and scope of activity.
Remember, if you are the employer seeking to enforce a Texas non-compete agreement, the burden is on you to prove all of these things.
What Is Adequate Consideration?
One common question about Texas non-compete agreements is, “What is adequate consideration?” In any business contract, both sides must receive something in return. In the context of a non-compete, consideration often takes one of the following forms:
- The employee receives confidential business information, such as trade secrets.
- The employee receives specialized training.
- The employee receives stock options.
Keep in mind that simply giving the employee an at-will job is not, in and of itself, adequate consideration for purposes of enforcing a non-compete agreement.
What Are Reasonable Restrictions?
One area where many Texas employers falter when it comes to enforcing non-compete agreements is the scope of the restrictions on the employee. So here are a few basic rules of thumb:
- A Texas court is unlikely to enforce a “global” geographic restriction on an employee’s right to work. However, a restriction limited to the territory where the employee worked for the employer would likely be considered reasonable.
- A non-compete that lasts indefinitely will not be enforced. But a two-year restriction would probably be reasonable.
- You may not be able to prevent an employee from working at all in your industry. But you likely could enforce a restriction narrowly tailored to the specific type of job they performed for you.
Ultimately, when it comes to enforcing non-compete agreements in Texas, what is “reasonable” is often left to a judge’s discretion. So it is essential that you work with an experienced Texas business litigation attorney who can effectively build and present your case. Contact SLG today at (512) 881-7500 to schedule a consultation with a member of our staff.