When it comes to the enforceability of non-compete agreements in Texas, misconceptions and half-truths are abound. Whether I am having a conversation with a lawyer that dabbles part time in non-compete agreements or a friend calling and asking me to confirm that his employer’s non-compete agreement is unenforceable, the enforcement of non-compete agreements seems largely misunderstood. Here are three of the most common misconceptions about the enforcement of Texas non-compete agreements and the facts to address these misconceptions.
Misconception 1: Non-compete agreements are not enforceable in Texas. This is the most common misperception. Texas Courts will enforce a Texas non-compete agreement as long as it comports with the non-compete statute, Texas Business and Commerce Code Section 15.50. The statute provides that if the non-compete agreement is ancillary to another enforceable agreement (think enforceable employment agreement), the restrained employee is given consideration (often trade secrets), and the restraint is reasonably limited in scope, duration, and geography, then the court is likely to find the non-compete agreement enforceable. As an employer, you want to be sure to hit these marks when implementing a non-compete or considering whether to enforce your non-compete agreement.
There is abundant case law addressing the reasonableness of a non-compete agreement’s scope, duration and geography and the analysis is fact-driven and addressed on a case-by-case basis. An enforceable agreement is largely limited to the type of work the employee performed, confidential information provided to the employee, the geographical area in which the employee performed his duties, and for a time period that coincides with the time it takes for the confidential information to become commonly used by competitors or replaced with new confidential information (restrictions up to 3 years may be upheld).
Misconception 2: Employers suing to enforce a non-compete will get their attorney’s fees. This is a common misperception among lawyers that dabble in the area of non-competes. In Texas, the Civil Practice and Remedies Code allows for the recovery of reasonable and necessary attorney’s fees when, among other things, pursuing a breach of contract claim. Often times, the employment agreement or the non-compete specifically states that such recovery is permitted. While the Supreme Court of Texas has not ruled on the issue, several intermediate appellate courts have. Those courts have reasoned that the non-compete statute outlines the remedies and expressly preempts other law. Because the non-compete statute does not provide for an employer to obtain attorney’s fees for the enforcement of a non-compete agreement, and preempts other law, employers cannot rely on the contract language or the Civil Practice and Remedies Code to obtain attorneys’ fees. Under certain specific circumstances, however, the statute does allow for the employee to recover attorney’s fees in connection with the defense of a knowingly unreasonable non-compete agreement.
Misconception 3: Texas courts treat non-solicit agreements differently than non-compete agreements. This is more of a half-truth. Non-solicit agreements typically prevent a departing employee from either soliciting their former customers or co-workers. While a non-solicit agreement is not the same as a non-compete agreement in all respects, the anti-competitive nature of preventing the solicitation of former clients or former co-workers has put it under the purview of the non-compete statute. In short, to be enforceable in Texas, a non-solicit agreement has to meet the same reasonableness requirements that a non-compete agreement must meet.
If you are an employer considering enforcing a Texas non-compete agreement, or you are an employee with concerns about your non-compete, you can now avoid these three very common misconceptions. Enforcing a Texas non-compete agreement can be tricky. Preparation of the properly worded agreement is only the start of the process. When executed properly, a non-compete agreement can be an excellent tool for the preservation of a company’s goodwill and/or trade secrets. The next time someone tries to tell you one of these misconceptions, you will be able to educate them on the truth of the matter.