Non-competition agreements are typically included in business sale and employment contracts. Although a number of restraints on competition are unlawful in Texas, the Covenants Not to Compete Act provides a legal exception for such agreements. Under the Covenants Not to Compete Act, a covenant not to compete may be enforceable if it is:
- Ancillary to an enforceable agreement – In Texas, stand-alone non-competition agreements are not enforceable. Such agreements must be either ancillary to or part of an otherwise enforceable agreement at the time of drafting. In order for a covenant to be considered ancillary:
- The consideration given must give rise to the individual seeking to enforce the covenant’s interest in restraining the other party to the contract; and
- The covenant must be designed to enforce the individual seeking to enforce the covenant’s obligations in the enforceable agreement.
- Reasonable – In addition to the requirement that the non-competition agreement be ancillary to an enforceable agreement, the non-competition agreement must contain reasonable limitations regarding time, scope of activity to be restrained, and geographic area. When determining whether limitations on time, scope of activity to be restrained, and geographic area are reasonable, the following guidelines should be applied:
- The duration of the non-competition agreement should relate to the needs of the business.
- The agreement’s geographic limitations should be no greater than the area in which the individual who is limited by the agreement worked while employed by his or her former organization. However, some courts have upheld non-competition agreements that prohibited former employees from soliciting customers with whom the employee had contract while employed by their former company despite the lack of a geographic restriction.
Additional Texas Non-Competition Agreement Considerations
While non-competition agreements should generally be drafted as narrowly as possible, there have been instances of courts finding overbroad agreements to be valid after revision by the court. When a non-competition agreement is found to be overbroad, courts have the option to amend the agreement’s language to impose no greater restraint than is necessary to protect the drafter’s legitimate business interests.
When a non-competition agreement is violated, courts typically enforce the same via an injunction, which is a court order prohibiting a party to the agreement from engaging in certain behavior or committing certain acts. In addition, following a successful outcome in court, the party seeking to enforce the agreement is sometimes entitled to recover attorney fees, monetary damages, and court costs.
Texas Legal Representation
If you are engaged in an employment dispute of any kind, please contact an experienced employment litigation attorney to discuss your issue. At Ajamie LLP, our experienced Texas attorneys represent employers and employees across a wide range of industries. We offer preventive counseling, litigate all facets of employment disputes, and advise clients in a number of industries. Please contact us for a consultation.