Non-Compete Agreements in Texas and The Reasonableness Requirement

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 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. In California, for example, non-compete agreements are void, whereas Texas recognizes their validity under certain circumstances.

When Are Non-Compete Agreements Enforceable in Texas?

Under Texas law, non-compete agreements must be part of an otherwise valid employment contract 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:

  • Duration
  • Geographical area
  • 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.

Duration of a Non-Compete Agreement

In terms of duration, unlimited time restrictions on competition are clearly illegal. However, there also isn't a standard amount of time that 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.

Geographical Restrictions

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 locations where he or she has actually worked for the employer in question. Restricting a former employee beyond these geographical areas is generally going to be seen as unreasonable, and therefore unenforceable.

Restrictions on Scope of Activity

Concerning the scope of activity, there are no hard and fast rules, but case history has 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.

Non-Competes for Healthcare Professionals

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.

Facing A Unfair Non-Compete Agreement? Call Kennard Law, P.C.

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.