Non-Compete Agreements in Texas and The Reasonableness Requirement

On behalf of Alfonso Kennard

Non-compete agreements, while legal here in Texas, must meet certain requirements in order to be enforced in court.

Here in Texas, we know that business thrives when there is free trade and competition, yet businesses are still able to take steps to protect their interests from employees who leave for greener pastures. Businesses are, under Texas law, able to negotiate contracts with their employees restricting their ability to compete against the business when they depart the company. These agreements are known as covenants not to compete or non-compete agreements.

Every state has slightly different laws concerning non-compete agreements, with some states providing robust recognition of them and other states limiting their enforceability to varying degrees. Out in California, for example, non-compete agreements are void, whereas Texas recognizes their validity under certain circumstances.

Texas non-compete agreement law in general

Under Texas law, covenants not to compete must be part of an otherwise valid employment agreement and are only enforceable when they are reasonable and do not impose greater restrictions on an employee than is necessary to protect the business' legitimate interests. Reasonableness, then, is the key to a valid non-compete agreement.

Texas' non-compete statute identifies several areas where reasonableness must be evaluated: time, geographical area and scope of activity to be restrained. Exactly what constitutes reasonable time, geographical and activity restraints is determined by the courts, and each case needs to be considered individually.

Looking at what case law has to say

With respect to geographical scope, non-compete agreements are more likely to be enforced in court when they don't restrict an employee beyond the areas where he or she has actually worked for the employer attempting to enforce the agreement. Restrictions going beyond such geographical areas are generally going to be seen as unreasonable.

In terms of duration, unlimited restrictions on competition are clearly illegal. It isn't possible to give a number of months or years courts will consider to be a reasonable duration for non-compete agreements. It depends on the industry the business is in, the employee's role in the company, the market in which the business is operating, and other factors. Non-compete agreements don't necessarily need to specify duration, but courts will only enforce such agreements for a reasonable time under the circumstances.

Concerning the scope of activity, there are no hard and fast rules, but cases have shown that courts are less likely to enforce non-compete agreements which prevent an employee from working with clients with whom the employee had no contact during his or her employment. Companies may generally prevent contact with existing customers, though. Non-compete agreements may restrict an employee from working for competitors, but the time and geographic limitations must still be reasonable for the agreement to be considered valid.

Special rules apply to non-compete agreements involving the practice of medicine. We will not look at these rules here beyond pointing out that board certified physicians may be restricted from competition, but parties seeking to prevent such competition must abide not only by the reasonableness standard, but also by various requirements laid out by Texas' non-compete statute.

Work with experienced legal counsel

Non-compete agreements which are overly broad and fail to reasonably protect a business' goodwill and interests can and should be challenged in court. Those who have been subjected to an employment agreement they believe is unfairly restricting their ability to obtain new work should consult with an experienced employment law attorney to have their case evaluated and determine their legal options.

Keywords: noncompete agreement, employment law, employment contract