When you agree to a new job and enter into an employment contract with a new employer, you may be faced with a non-compete agreement in Texas.
Texas non-compete law does not allow all non-compete agreements—also known as a non-competition agreement or a covenant not to compete—to be enforced in the state.
For a non-compete clause Texas to be enforceable, it must meet certain requirements. The Texas Workforce Commission provides detailed information about non-compete agreements in Texas and how they work.
Our experienced Southlake business law attorneys will explain covenants not to compete in Texas and how they might affect you.
Learning More About Texas Non-Compete Agreements
A non-compete agreement is one particular type of restrictive covenant, which is a legal term for a clause in an employment contract or employment agreement that prevents an employee from doing something.
A Texas non-compete or non-competition agreement is designed to limit the place and nature of work an employee can do.
Most often, non-compete agreements are designed to prevent an employee from leaving their job and competing with their former employer for clients or business.
While Texas wants to encourage businesses and to promote healthy business competition, it also allows employers to require employees to sign non-compete agreements that protect their business interests.
Each state has different laws concerning non-compete agreements, and it is important to understand when a non-competition agreement is enforceable under Texas law.
Enforceability of Non-Compete Agreements in Texas
Texas statute holds the following regarding non-compete agreements:
- A covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.
- A noncompetition agreement is enforceable if it is reasonable in time, scope, and geography and, as a threshold matter, “if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.” TEX. BUS. & COM.CODE § 15.50(a).
For a non-compete agreement in Texas to be enforceable, all of the following must be true of the non-competition agreement or clause:
- The employer can show that the non-compete clause does not place an unreasonable burden on the employee’s ability to practice a profession.
- The employer can show that the court’s decision not to enforce the agreement would cause harm to the business.
Historically, public policy in Texas favored promoting business competition and placed the burden upon the employer to show that the non-compete clause is necessary. Recent appellate court rulings, however, have broadly interpreted the statutory language to support the enforcement of non-compete agreements.
For instance, at-will employment is typically not an enforceable agreement, but courts have found that employers that provide employees access to proprietary information is sufficient consideration to make the non-compete enforceable.
Scope of Texas Covenants Not to Compete
To be enforceable, as we mentioned above, a non-competition agreement in Texas must also be reasonable in the way it limits a former employee.
It cannot unreasonably limit the following:
- A former employee’s work for an extended period,
- The geographic area where the former employee would do business, and
- The scope of the former employee’s work.
What does this mean in practice?
While there is no hardline rule for the duration and scope, a Texas court will consider how a reasonable person would approach this question.
For example, limiting a former employee’s business for 20 years likely would be unreasonable. Similarly, it would likely be unreasonable to limit a former salesperson from engaging in other types of business activities unrelated to sales.
Texas courts have clarified that the geographic scope must be limited to the area where the employee worked and where the employer had business relationships.
Contact a Texas Employment Lawyer for Assistance
Do you have additional questions about non-compete agreements? A Texas employment law attorney at the Francis Firm can help. Contact us today for more information or legal guidance.