Non-compete Agreements

You are here reading this information about Texas non-compete agreements probably because:

1) An employer has given you a non-compete and told you to sign it.

2) You want to leave a company and you’re wondering whether a non-compete that you already signed is enforceable.

or

3) An employer is threatening to come after you and sue you for violating a non-compete.

(First, know that any information below is provided for general educational purposes only. To advise you on a specific course of action, you would need to speak to a knowledgeable attorney about the specific facts of your specific situation.)

Whatever situation you have, to handle it the right way, you need to get educated on non-competes and likely talk to a board-certified employee rights lawyer. I have found that much of what the average Texan “knows” about non-compete agreements is not really accurate. Certainly – wrong enough to cause them to make bad decisions or avoid taking advantage of great career opportunities. A lawyer’s experience is critical in this area – probably more critical than any other employment law area – because there are so many ways that the situation can play out, and so many ways to resolve a non-compete dispute. So get educated and perhaps contact an experienced, board-certified employee rights lawyer on your issue for the best analysis and advice. Yes, it will cost some money – but for perhaps even a couple of hundred dollars, you can get advice that could save you thousands of dollars down the road, gives you peace of mind, and improves your career and life.

Now let’s get to the technical information about non-competes and answer a few FAQs.

A covenant not to compete, or a non-competition agreement – known informally as a “non-compete” – is an employment agreement where the employee agrees not to compete with their current employer after they leave that employment, for a certain period of time. Texas law generally recognizes that non-competes can serve a valid and useful function for employers trying to protect their internal secrets, sales pricing and procedures, customer lists and other data from being used against them in the marketplace after someone leaves the company and joins a competitor or starts their own competitive business. It can also serve to protect an employer from valuable sales relationships that the employee developed solely through access provided by working for that employer. The non-compete gives the employer the confidence that they can give someone access to critical information in their business that they don’t generally make public, or provide the employee access to their client relationships, without fearing that the employee could use such access to the employer’s detriment after leaving. There are often other provisions included in these agreements that have to do with confidentiality, or preventing the employee from drawing away other current employees when he or she leaves the job (informally called “non-solicit” or “anti-poaching” provisions).

As a general rule, Texas recognizes and enforces non-compete agreements if they contain certain basic provisions. (Some other states, like California, generally do not.) The non-compete has to provide an exchange of value (called “consideration” among lawyers) to consummate the agreement. While that consideration usually has to be more than just your right to have a job, it can be as little as providing you access to confidential company information or valuable relationships. It can also include unique training or perhaps stock options. It depends on the facts whether the employer has provided sufficient “consideration” to make the agreement enforceable. Our Texas Supreme Court has broadened what is considered “consideration” to support a non-compete, and most of the time in my experience, the consideration provided would qualify under current law.

Also, the non-compete has to provide for reasonable restrictions on the geographic area covered by the non-compete, the time limit of the restriction, and specifically what types of activities will be prohibited by the non-compete.

Some general rules:

1) The geographic area has to be related to both the company’s operations area, as well as the actual work performed by the employee during their employment. For example, if the employee performed sales only in the Houston sales region, a court might not enforce a statewide restriction in a non-compete for a statewide company because that employee wasn’t engaging with customers in other areas of the state.

2) The time period restricted must be reasonable. Most Texas courts will find up to two years of restriction after you leave employment to be reasonable. More than that might be considered reasonable under certain circumstances, most likely where the industry involved is very small or narrow in scope and where the employee worked at a high-level – perhaps as an executive – and therefore was involved in company strategy and making high-level connections with the limited clientele in that industry.

3) The type of activities to be restricted has to be specified and must be reasonable as well. Yes, a non-compete can be enforceable if it only specifies that the employee may not “compete” with the employer, but a lack of specificity may be held against the employer who drafted the non-compete if a certain activity is arguably not competing. In addition, non-competes against sales employees will often only be enforceable to the extent that they restrict the employee at their new job from contacting the old employer’s customers with whom the sales employee actually had contact.

And, an employee may work go to work for a competitor, but in a completely different department than their work with the previous employer. So while the employee is yes, technically working for a competitor, their activities at the new employer are not competitive with the previous employer. So that might be a reason why a court refuses to enforce a non-compete in that circumstance. Again – it’s about protecting legitimate, protectable interests of the employer, and not about allowing an employer to use a non-compete to hurt an employee’s ability to find new employment and therefore chain them down to the company. 

One thing always applies – how a non-compete would be enforced or not enforced depends on the specific facts of each situation. Also, if a provision such as the geographic restriction is considered “unreasonable” – that, in Texas, won’t likely invalidate the non-compete. Texas law allows a court to simply edit the non-compete (courts call it “blue penciling”) to bring that provision within a reasonable range. A court can take an “all Texas” restriction and make it “Dallas County and adjacent counties,” for example, if that appears to be a reasonable restriction based on the facts.

So again, it’s important to talk to a board-certified employee rights lawyer to analyze your situation and figure out your best options. But those are the basics on a non-compete.

Now let’s cover some of the questions that may have brought you here:

QUESTION: My employer handed me a non-compete and told me to sign it or I’ll be fired. Is that legal? Can they do that?

As a general rule, yes they can. At-will employment in Texas allows an employer to terminate an employee for any reason that is not illegal and is not otherwise a breach of an employment agreement between the employer and employee. And note that an employment agreement is a specific thing – most employees do not have employment agreements, even if they received an offer letter or employee handbook. However, in this situation, it’s possible that the non-compete is not enforceable, depending on whether the employer actually provided “consideration” after making you sign the non-compete. It really, really depends on the facts of the situation. But that’s a different issue than whether the employer can fire you for not signing. The Texas Supreme Court has said that an employer’s threat to fire an employee is not sufficient coercive to invalidate certain employment agreements that an employee signs to avoid termination. (Yes, really.) 

QUESTION: I got an offer to work for a competitor but I have a non-compete with my current employer. I really want to take this job. What should I do?

This is one of those times where the lawyer’s experience with non-competes is critical. It really, really depends on a lot of specific things.

Is the non-compete enforceable?

Who is the competitor?

How is your relationship with your current employer?

Is your current employer genuinely concerned about competition or was this just a standard document they have all employees sign?

Even if it’s a competitor, would you be working in a department that won’t concern your current employer, or with a customer base that doesn’t overlap with the customer base you are working with at your current employer?

How has your current employer handled non-compete violations with other employees in the past?

Does the potential employer know about the non-compete? How do they feel about it? 

How badly does the potential employer want you?

Again, there are so many considerations. However, you want this new job. Don’t just say “no” to a great opportunity out of your general fear that your non-compete prevents you from taking the job. Talk to a board-certified employment attorney first so that you can understand how these types of  situations actually play out in practice and what options are available. There are lots of creative ways to handle it that may allow you to take advantage of that next, great opportunity, despite having signed the non-compete agreement.

QUESTION: I received a letter from my former employer warning me about the non-compete that I signed when I worked with them. Should I be concerned?

Maybe, maybe not. You should promptly talk to a lawyer, who can help you figure out whether you should be concerned.

Some employers have their lawyers send out such letters to employees that leave the company as a matter of course.

Some employers will threaten former employees who appear to be violating a non-compete, but then take no further action.

Some employers send such letters when they genuinely believe their business interests are at risk and are sufficiently motivated take legal action because you appear to be violating a non-compete.

Whatever the situation – don’t ignore the letter. Contact a board-certified employment attorney. Get advice, a strategy, and some peace of mind.

QUESTION: Yes, I am totally violating the non-compete by starting a competitive business. I just got a threatening letter from my former employer with whom I signed the non-compete. What’s the worst thing that can happen?

First, you’re not going to jail over this. But, it can cost you a lot of money and lead to a significant disruption in your life and your new business and potentially get it shut down.

The employer can file in court for what’s called an “injunction.” An “injunction” is a court order that could prohibit you from continuing your new business activities or competitive employment. If the employer can show a court that you are probably violating the non-compete, a court can order you (through a “temporary restraining order” – TRO – for 14-28 days, then through a “temporary injunction” through the remainder of the court case) to stop operating your new business. And then the employer can win an award of money against you and also get the non-compete extended as a result of the lawsuit. They may also be able to make you reimburse them for their attorney fees for having to go to court over this. And – you will have to hire your own employment attorney to defend yourself, win or lose. This all equals a lot of money. The moral of the story is that if you know that your new business plan may violate a non-compete agreement, talk to a board-certified employee rights lawyer first. An ounce of prevention can be worth many pounds of cure.

Need help?

If you need assistance with reviewing a non-compete or trade secret agreement, or fighting an employer coming after you because of one, call the O’Brien Law Firm NOW at (512) 410-1960 for a free confidential case review, or fill out the form below so that we can get to know you and determine how we might be able to help you promptly. Your information is confidential and the form submission goes directly to attorney Kerry O’Brien for his review.