Non-Compete Agreements

Business lawyers often draft non-compete agreements within employment agreements. However, Texas has a very particular set of statutory requirements to make a non-compete agreement enforceable. Accordingly, Texas courts have held that not all non-compete agreements are enforceable.

Business lawyers often draft non-compete agreements to limit activities of a former employee that would give rise to direct competition with their former employer.  Such agreements are usually limited to a specific time and to within a specific location. Non-compete agreements can be included in an employment agreement or are included as a separate agreement. Non-compete agreements can be used for employees or contractors. These agreements should be executed before the employee begins work for the employer. The purpose of a non-compete agreement is to discourage a former employee from using the company’s brand and resources to build customer relationship, and then taking the company’s customers when departing the company.

Texas courts have held that non-compete agreements are enforceable. However, not all non-compete agreements are treated equally. The Texas Business & Commerce Code requires that such an agreement must be both “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made”; and the covenant must contain “limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.” In addition, Texas courts have held that non-complete agreements must either implicitly or explicitly discuss that an employer must provide confidential information as a requirement for the employee’s performance of their employment duties. The laws related to non-compete agreements have been changing and should be reviewed before including a non-compete condition as part of any employment.

While a company may have enforceable non-competition agreements in place, it can also be helpful to have non-solicitation agreements embedded into its commercial contracts. Non-solicitation agreements can be used to prevent former employees, who terminated their former employer for a competitor of the former employer, from encouraging current employees to leave their employer for the competitor as well. Additionally, non-competition agreements can be used to prevent suppliers who perform work at a company from taking employees that would complement their business (e.g. in supporting the company in providing services to competing companies). On the other hand, a supplier may request a non-solicitation agreement for the customer to prevent the customer from luring key employees from the supplier in support of the customers business.

Kirkpatrick Law has business lawyers with experience in drafting non-compete agreements and non-solicitation agreements into employment and service agreements. These agreements can be used to protect trade secrets such as customer lists and prevent a mass departure of employees that possess specialized skills or knowledge. However, employers should be careful not to require onerous or illegal terms because such terms could have the effect of discouraging the best talent for their business or even create unnecessary legal liability as part of the hiring process.

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Non-Compete Agreements Q&A's

Non-Compete Agreements Q & A's

What is a non-compete agreement? +

A non-compete agreement attempts to limit activities of a former employee that would give rise to direct competition with their former employer.  Such agreements are usually limited to a specific time and to within a specific location. Non-compete agreements can be included in an employment agreement or are included as a separate agreement. Non-compete agreements can be used for employees or contractors. These agreements should be executed before the employee begins work for the employer. The purpose of a non-compete agreement is to discourage a former employee from using the company’s brand and resources to build customer relationship, and then taking the company’s customers when departing the company.

Are non-compete agreements enforceable in Texas? +

Texas courts have held that non-compete agreements are enforceable. However, not all non-compete agreements are treated equally. The Texas Business & Commerce Code requires that such an agreement must be both “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made”; and the covenant must contain “limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.” In addition, Texas courts have held that non-complete agreements must either implicitly or explicitly discuss that an employer must provide confidential information as a requirement for the employee’s performance of their employment duties. The laws related to non-compete agreements have been changing and should be reviewed before including a non-compete condition as part of any employment.

What is the difference between a non-compete agreement and a non-solicitation agreement? +

While a company may have enforceable non-competition agreements in place, it can also be helpful to have non-solicitation agreements embedded into its commercial contracts. Non-solicitation agreements can be used to prevent former employees, who terminated their former employer for a competitor of the former employer, from encouraging current employees to leave their employer for the competitor as well. Additionally, non-competition agreements can be used to prevent suppliers who perform work at a company from taking employees that would complement their business (e.g. in supporting the company in providing services to competing companies). On the other hand, a supplier may request a non-solicitation agreement for the customer to prevent the customer from luring key employees from the supplier in support of the customers business.