What business owners in Texas should know about non-competes

Non-compete agreements are extremely useful for Texas businesses, as long as they are enforceable.

According to the U.S. Department of the Treasury, nearly 30 million workers across the country are in some type of non-compete agreement. These contracts typically prohibit a worker from going to a competitor. They are governed on a state-by-state basis, which means Texas has its own set of laws that determine the validity and enforceability of a document.

A non-compete agreement has significant advantages for certain businesses. In order to reap those benefits, company owners should have a firm grasp on state laws and how to draft a legitimate contract.

What are the benefits?

Companies that use non-compete agreements do so mostly in an effort to protect their trade secrets and to keep high-performing workers from going to a competitor. Additionally, these contracts reduce the likelihood that losing a worker means losing a valuable client, who, without the contract in place, could follow that worker to a new job with a competitor.

What makes an agreement enforceable?

Under the Texas Business and Commerce Code, a non-compete is enforceable if it is either ancillary to or part of another enforceable agreement. Additionally, these contracts much have each of the following present:

  • A reasonably set time
  • A reasonably set geography
  • A defined scope of activity

In other words, a contract may not simply say that a current employee is never allowed to work for a competitor anywhere in the world in any capacity. Instead, the terms must be reasonable - though it may be up to a judge to determine what "reasonable" actually means.

Typically, employers may request that for up to three years, a worker may not go to a competitor and perform the same type of work he or she was doing at the present company. Additionally, only competition in the current company's geographical footprint may be considered. A company that only does business in Texas, for example, should not include a provision that keeps an employee from getting a job outside the state.

What if a former employee violates an agreement?

When someone violates a non-compete agreement, a business in Texas may file a claim seeking damages. It is important to note that even if an employee was fired, if the contract included information regarding termination, the employer may be able to seek legal recourse. Possible outcomes include an injunction against the employee to stop the behavior. Additionally, the employee could have to pay for any losses that the behavior created.