In Texas, non-compete agreements are becoming increasingly popular among businesses looking to protect their competitive edge. These agreements are designed to prevent employees from leaving their job and immediately competing with their former employer, either by starting their own business or joining a competitor.

However, non-compete agreements are not easy to enforce in the state of Texas. The Texas legislature has taken steps to limit their use and require employers to meet specific standards before enforcing them. Here`s what you need to know about non-compete agreements in Texas.

What is a Non-Compete Agreement?

A non-compete agreement is a legal contract between an employer and an employee that restricts the employee from working for a competitor or starting a competing business for a specific period after leaving the job. The purpose of a non-compete agreement is to protect the employer`s trade secrets, confidential information, and customer relationships.

Non-compete agreements can be included in employment contracts, but they can also be a separate agreement signed during employment. These agreements typically specify the geographic area, duration, and scope of the restrictions on the employee.

Texas Non-Compete Law

Texas law generally disfavors non-compete agreements and requires that employers meet specific standards before enforcing them. The Texas Covenants Not to Compete Act (the Act) governs the use of non-compete agreements in Texas.

The Act requires that a non-compete agreement be ”ancillary to or part of” an otherwise enforceable agreement, such as an employment contract, and that it is reasonable in terms of geographic scope, duration, and type of activity restricted.

Reasonable Scope

One of the most important considerations in a non-compete agreement is the scope of the restrictions. The Act requires that the restrictions be reasonable and not greater than necessary to protect the employer`s legitimate business interests.

For example, a non-compete agreement that prevents an employee from working in the same industry for five years in the entire state of Texas would likely be considered unreasonable. However, an agreement that limits the employee from working in a specific county or region for a year may be enforceable.

Legitimate Business Interest

The employer must also have a legitimate business interest that justifies the use of a non-compete agreement. This may include protecting confidential information, customer relationships, or a specialized skill set.

For example, if an employee has access to confidential information such as trade secrets, a non-compete agreement may be necessary to protect the employer`s interests. Non-compete agreements that prevent low-wage or entry-level employees from working in similar jobs with low barriers to entry may be considered unreasonable.

Enforcement

If an employer seeks to enforce a non-compete agreement, they must file a lawsuit seeking injunctive relief. The employer must show that the non-compete agreement is reasonable and necessary to protect their legitimate business interests.

If the court finds that the non-compete agreement is overly broad or unreasonable, it may modify the agreement to make it enforceable or refuse to enforce it altogether.

Conclusion

Non-compete agreements can be an effective tool for employers to protect their competitive edge. However, they must be carefully crafted to meet the requirements of Texas law. Before entering into a non-compete agreement, employers should consult with an experienced attorney to ensure that the agreement is enforceable and reasonable.