Protecting Your Business in an Era of Employee Mobility
According to a recent study, the average person will hold more than a dozen different jobs during the course of his or her career. If you own and operate a company with proprietary products, or that depends on confidential information to be competitive in the market, it’s in your best interests to ensure that all appropriate employees enter into a non-compete agreement, so that you won’t spend the time and money to train them, only to have them put their skills to work for a competitor. But there are limits to the reach of a non-compete agreement. In fact, some states, including Oklahoma and North Carolina, don’t recognize non-compete agreements at all.
Non-Compete Agreements in Texas
While Texas does recognize certain non-compete agreements, there are specific restrictions. First, a non-compete agreement (also known as a “covenant not to compete”) must be part of a valid and enforceable employment agreement. In addition, the non-compete agreement will only be enforceable if the restrictions that it sets forth are reasonable—Texas courts will customarily strike down covenants not to compete that impose greater restrictions than are needed to legitimately protect the business.
Texas statutes establish a number of criteria for determining whether the scope of a non-compete agreement is reasonable:
- Is the term of the agreement reasonable? A permanent covenant not to compete will generally not be enforced. However, there is no hard and fast rule regarding an acceptable length of time—that typically depends on a number of factors, including the type of business, the employee’s position at the company (and access to critical information) and the degree of change in the market.
- Is the geographic limitation reasonable? The purpose of the non-compete is to prevent the departing employee from legitimately affecting the company’s business. Accordingly, if the company has a limited market, it would be unreasonable to prevent the employee from taking a job in another market. For example, if the company sells only in the state of Texas, a non-compete that covers Maine, Florida or California will likely be construed as too broad.
- Is the scope of employment or activity set forth in the non-compete reasonable? A covenant not to compete that prevents an employee from taking any type of job with a competing organization will likely not pass muster with the courts. There must be some legitimate connection between the position held at the company and the work the employee will do for the new company.
At MCIS Law, PLLC, in Stafford, we aggressively advocate for businesses and individuals in southeast Texas. For a confidential consultation with an experienced and knowledgeable lawyer, email us or call our office at 925-783-4038. We accept all major credit cards.