Often times, employers and employees leaving for a new position find themselves asking one question: is the non-compete or non-solicitation agreement the employee signed with her prior employer enforceable? The answer to this question is tricky. Texas law attempts to balance an employer’s interest in protecting its trade secrets and customer relationships against an employee’s interest in taking a different employment opportunity or even starting a competing business, and each situation presents unique obstacles and considerations. But there are a few key guideposts that help us answer that question.
The first question both must ask is whether the non-compete is supported by valid consideration - in other words, what did the employer agree to provide (and then actually provide) to the employee in exchange for the employee’s agreement not to compete? Do not simply pay your employees money in exchange for their agreement not to compete; under Texas law, money on its own is generally insufficient to create an enforceable non-compete. Instead, do one of these things: provide your employee with an interest in your company’s long-term success (i.e. give them an ownership interest), or agree to provide - and then actually provide - your employee with the confidential information or relationships that you are trying to protect through the non-compete agreement. If you’re concerned a salesperson will walk away with all of your important clients, agree to introduce - and then actually introduce - that salesperson to those clients. If you’re concerned an engineer is going to learn your trade secrets and then take them to your biggest competitor, agree to give - and then actually give - that engineer access to those trade secrets.
The second question concerns the reasonableness of the agreement not to compete: to be enforceable, a non-compete or non-solicitation agreement must be reasonable in time, geographic scope, and the scope of activity restrained. While the reasonableness of the non-compete is highly fact dependent, there are a few key points to keep in mind.
First - a non-compete that is unlimited in time will not be enforceable. Even more, courts are highly unlikely to enforce a non-compete that extends more than a year or two beyond the employee’s departure. Think carefully about how long you need the non-compete to last to protect your interests; if it extends any longer than that, you risk a court refusing to enforce it until it’s too late.
Second - and similar to the first - a non-compete that is unlimited in geographic scope will not be enforceable. Instead, try to match the geographic scope of an employee’s non-compete to the geographic scope of the employee’s duties while employed. For example, a non-compete for a salesperson who only served clients in Harris County may be limited to Harris County. Similarly, non-solicitation agreements (agreements not to solicit customers or clients of a prior employer) should be limited to customers with whom the employee interacted during the course of the employee’s employment, rather than attempting to cover all customers of the company.
Third - a non-compete must be reasonably limited in the scope of activity restrained. If your company sells drilling valves, you can limit a salesperson’s ability to sell competing drilling valves to your customers, but probably can’t limit that same salesperson’s ability to switch industries and sell paper to your customers. Similarly, you can limit an engineer who designed your drilling valves’ ability to take his knowledge of those designs to a competitor, but you probably can’t limit that engineer’s ability to switch fields and take a human resources position with that same competitor.
Have questions? Need help drafting an enforceable non-compete? Do you find yourself in this situation right now? Let us know, we’re happy to discuss your situation with you.
