Non-compete agreements are common in the U.S. labor market. According to experts, upwards of 20% of all workers are covered by some form of a non-compete agreement. But this number varies greatly among industries. For instance, nearly half of all engineers report having signed a non-compete agreement.
That being said, non-compete agreements are not always enforceable. In this article, we will look at what a non-compete agreement Texas is, whether they are enforceable in Texas, and what you should do if you think a non-compete agreement has been violated.
What Is a Non-Compete Agreement?
A non-compete agreement is a contract in which an employee agrees not to work for a competing employer after the employment term has expired. This type of agreement is also referred to as a covenant not to compete or a restrictive covenant. A non-compete agreement usually limits the employee’s right to work for a competitor or start a business similar to the employer’s for a specified amount of time and/or within a certain geographic area. You can view a sample non-compete agreement Texas by clicking here.
The laws governing non-compete agreements are different in every state. As a general rule, however, the enforceability of a covenant not to compete depends on striking the right balance between employees’ right to work in the field in which they are trained with the employer’s legitimate business interests.
Are Non-Compete Agreements Enforceable in Texas?
We are frequently asked whether a non-compete agreement Texas is enforceable. While the short answer to this question is “yes,” non-compete agreement Texas law is complex, and enforceability often depends on many factors.
Non-compete agreements in Texas are governed by the Covenant Not to Compete Act. Under the Act, a non-compete agreement cannot be a separate agreement but must be part of an otherwise enforceable agreement that contains reasonable limits as to the time, geography, and the activity that is being restricted.
When determining what is reasonable, courts will consider factors such as the type and size of the business, whether adequate consideration was given to the employee at the time they signed, and whether the non-compete agreement was signed at the same time as another binding agreement.
Can a Non-Compete Agreement Be Enforced Across State Lines?
A complication arises when an employee that signed a non-compete agreement in Texas moves to another state or vice versa. If the non-compete agreement includes a provision that gives Texas courts exclusive jurisdiction over the agreement, then the matter will be litigated in a Texas court. But if there is no exclusive jurisdiction provision, then much depends on the state laws that are applied to the agreement.
As a general rule, the court will consider whether the limitations in the non-compete agreement are reasonable. If the employer does not even conduct business in the state that the employee moved to, then it is unlikely that the agreement will be enforced. If you are unsure whether the agreement is enforceable, an experienced non-compete agreement attorney in Texas can advise you of your rights and options.
What Is the Difference Between a Non-Compete and a Non-Disclosure Agreement?
People often use the terms non-compete agreement and non-disclosure agreement (NDA) interchangeably. However, they mean two entirely different things.
We said above that non-compete agreements limit an employee from working for a competing employer within a given field, period of time, and/or distance from the former employer. NDAs, however, do not attempt to limit the employee’s ability to work for a competitor or to start a similar business that competes with the employer. Rather, NDAs prevent employees from disclosing the employer’s proprietary information and/or trade secrets. This can include technology, business practices, client lists, or a unique formulation.
The remedies available to an injured party for the breach of an NDA or non-compete agreement are similar. The employer can pursue injunctive relief to prevent the employee from competing, and to prevent the employee from disclosing the information. Moreover, both causes of action are typically based on breach of contract. If the injured party can prove its case, the court can award monetary damages.
Pros and Cons of a Non-Compete Agreement
Non-compete agreements have pros and cons for both the employer and employee. For employers, non-compete agreements offer the following benefits:
- They protect the employer’s financial interests from unfair competition from a former employee. Moreover, an employer may have a tortious interference claim against the company that hired the former employee.
- They can encourage employees to stay with the company long-term, as the employee may be unable to work in the same field within the same geographic area.
- They protect the employer’s trade secrets and discourage opportunistic behavior.
But there are also some disadvantages for employers, including:
- The non-compete agreement which the employer bargained for as part of the hiring process may not be enforceable. For instance, the agreement may be overly broad in time and geographic scope. For this reason, it is a good idea to have an experienced non-compete agreement attorney in Texas look over or draft the agreement for you.
- The most qualified candidates for a job may go elsewhere since they do not want to be restricted from taking a better position should the opportunity arise.
- The employer can incur costs to litigate the enforceability of the agreement.
For employees, there are not many benefits to signing a non-compete agreement, except that they may face less competition for the position and receive additional consideration for agreeing to the terms. Some of the cons of non-compete agreements for employees include:
- Weakened bargaining power.
- Difficulty finding a job while the covenant is in effect.
- Potential personal liability for the employer’s damages.
- Few social benefits at work for signing the agreement.
What Happens When a Non-Compete Agreement Is Violated?
When a non-compete agreement is violated, the question that often arises is “How hard is it to enforce a non-compete agreement in Texas?” The answer to this question depends on many factors.
If you suspect that the non-compete agreement has been violated, it is important to have an attorney look over the agreement to determine whether it is enforceable. A non-compete agreement attorney in Texas will look at the restrictions to make sure that they are not too broad.
But even if the non-compete agreement is valid under Texas law, the court may refuse to enforce it should the employee have valid legal defenses. For instance, the employer may not be able to prove that it established substantial harm as a result of the breach. Thus, the facts of each case must be analyzed carefully to determine your rights, options, and likely outcome in the event of litigation.
Non-compete agreements are a relatively common component of employment relationships in the state of Texas. The experienced legal team at Padua Law Firm understands the law governing these agreements and has practical experience resolving disputes both inside and outside of the courtroom.
If you are a party to a non-compete agreement in Texas and are unsure whether it is enforceable, or you need help drafting an enforceable agreement, contact our experienced legal team today.