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In most states, covenants not to compete are legal, but are limited in effect so as to prevent unreasonable abuse of such restrictions. Similarly, in the state of Texas, the legislature enacted the Covenant Not to Compete Act, which governs the enforceability of employee non-compete agreements. Under the Act, whether a non-compete agreement is enforceable depends on the particularities of the agreement, as well as the circumstances surrounding the covenant not to compete. This can be difficult to parse, but with the assistance of an experienced Houston business contract attorney here at Berg Plummer Johnson & Raval, LLP, you can accurately evaluate the enforceability of your non-compete agreement.
When an employer and an employee enter into a non-compete agreement, they are balancing the preservation of the employer’s business interests with the employee’s freedom to work without restriction. In exchange for being hired, the employee agrees not compete with the employer’s legitimate business interests for a limited, specified period of time, and within a circumscribed geographical area.
Suppose, for example, that an employee has joined an advertising firm as a junior account executive. The new employee is required to sign a non-compete agreement that restricts them from working for a competitor in the area for six months. The employer is concerned that, over the course of employment, the employee may form close relationships as an account executive with various clients. By the time the employee is ready to leave the firm, the clients may be more loyal to the employee than to the firm itself. As such, if the employee were to work for a competitor firm in the area, they might lure clients away and therefore interfere with the legitimate business interests of their original employer.
In Texas, a valid non-compete agreement cannot be too restrictive. It must only impose the absolute minimum restriction necessary to protect the legitimate business interests of the employer. Otherwise, the agreement will be deemed unenforceable pursuant to Texas statutory law.
Pursuant to section 15.50 of the Act, there are certain criteria upon which the enforceability of a non-compete agreement rests. Specifically, the following criteria lie at the core of an enforceability determination:
Each of these criteria are weighed against the circumstances in determining whether they are reasonable and do not impose a disproportionate restriction on the activities of the former employee.
For example, if a non-compete agreement that prevents an employee from working for any other competitors in the industry for a period of two years, with no geographic limitations, will likely be considered unreasonable and disproportionately restrictive on the employee’s activities. A Texas court would almost certainly find that it is invalid and unenforceable.
Fundamentally, the restriction must not impose a restriction that goes beyond the minimum necessary to satisfy the legitimate business interests of the employer.
Whether you are a company attempting to enforce a non-compete agreement in Texas to prevent a former employee from interfering with business, or an employee interested in finding the non-compete agreement invalid, it’s important that you get in touch with a qualified attorney for further guidance. Connect to an experienced Texas contract attorney here at Berg Plummer Johnson & Raval, LLP as soon as possible.
Berg Plummer Johnson & Raval, LLP
3700 Buffalo Speedway, Suite 1150, Houston, TX 77098
Phone: 713-526-0200 - Fax: 832-615-2665