Non-compete agreements can have serious consequences for employees in Texas, even after termination. Many workers assume that being fired voids their non-compete clauses, but this is not always the case. In Texas, non-competes are generally enforceable if they meet certain legal requirements. Below, we break down how these agreements work and what employees should consider before signing one.
Understanding Texas Non-Compete Agreements
Texas law permits non-compete agreements under Section 15.50 of the Texas Business and Commerce Code. However, to be enforceable, a non-compete must meet three specific conditions:
- Ancillary to an Enforceable Agreement – A non-compete must be tied to a valid employment contract or another enforceable agreement. Typically, employers provide consideration in the form of confidential information or specialized training in exchange for the employee’s agreement not to compete.
- Reasonableness – The agreement must be reasonable scope, geographic reach and duration. For example, courts are more likely to uphold a non-compete that restricts competition within a limited region and for a reasonable time (often two years or less).
- Consideration and Legitimate Business Interests – The employer must provide some form of consideration—typically confidential information, trade secrets, or specialized training—that justifies restricting the employee’s ability to compete.
Does Termination Affect the Enforceability of a Non-Compete?
A common misconception is that non-competes become invalid if an employee is fired. In reality, most non-competes remain enforceable regardless of whether an employee quits, is laid off, or is terminated. The reasoning is that the circumstances of termination do not necessarily affect the employer’s need to protect trade secrets or other confidential information.
That said, there are scenarios where a terminated employee might challenge the enforceability of their non-compete. For example, if an employee was fired almost immediately after signing their agreement, they may argue that they never received meaningful consideration (such as specialized training or access to trade secrets), making the agreement unenforceable. Courts will examine the specific facts of each case to determine whether the employer fulfilled its obligations under the agreement.
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