Definition
In Texas, a business can limit an employee’s ability to compete against that business when she or he is no longer employed there. A non-compete agreement helps protect businesses from losing clients and/or proprietary information if an employee moves to another job. A non-compete agreement in Texas usually must be part of an employee contract. Non-competes are only valid and enforceable when their restrictions reasonably protect the business interests of the employer.
Best Practices When Drafting a Non-Compete in Texas
One key component of an enforceable non-compete agreement is that it agrees to provide the employee with confidential or restricted information. By doing so, the non-compete becomes “ancillary to an otherwise enforceable agreement,” a basic requirement in Texas. Tex. Bus & Com Code §15.50 (a); Alex Sheshumoff Mgmt. Servs., L.P. V. Johnson, 209 S. W. 655 (Tex. 2006).
In addition to confidentiality, a non-compete in Texas must include a reasonable time limit. According to Tex. Bus. & Com. Code § 15.50 (a), a non-compete without a time limitation is unenforceable. Defining what is “reasonable” can be a challenge and varies depending on the business. The employer has the burden to prove that the non-compete time restriction is reasonable. Generally, the longer the timeframe, the more likely it may be found to be unreasonable. In Texas, a time range of two to five years has repeatedly been held a reasonable time restriction in a non-competition agreement. See Stone v. Griffin Comms. & Security Sys., Inc., 53 S.W.3d 687,696 (Tex. App.--Tyler 2001, no writ).
Geographical limitations are another critical component of a non-compete agreement. Geographical limitations in the non-compete are usually related to where someone works, meaning that a salesperson who only works in Houston might not be restricted from selling products in Dallas. However, the scope of the limitation may vary depending on the employee’s level of responsibility. In sales, for example, an employee in upper management will likely be assigned a larger geographical area than someone with less responsibility in the company. Tex. Bus. & Com Code § 15.50 (a).
Understanding what in a non-compete agreement qualifies as reasonable and enforceable in Texas is particularly challenging. Seeking advice from a knowledgeable lawyer is essential in order to draft a valid, enforceable non-competition agreement.
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