Many organizations include noncompete clauses or agreements in their employment contracts. They are typically intended to protect trade secrets or other confidential information. The idea is to restrict an employee from going into active competition with your company after having been exposed to your proprietary information.
Yet many people have heard that Texas won’t enforce noncompetes. That isn’t true, although there is some truth to the rumor. The reality is that Texas courts can and do approve noncompete agreements, as long as they are part of an otherwise enforceable contract and the terms are reasonable.
A noncompete agreement is a partial restraint of trade. It prevents the employee from having complete freedom to compete in the marketplace. It prevents other employers from having the opportunity to hire qualified talent. If this restraint were allowed unabated, it could result in workers being unable to put food on the table.
What does reasonable mean? The courts have set many precedents, but each case must be decided in context. The general idea, however, is that these agreements must be reasonably limited in scope, geography and duration, and they must be more or less tailored to the type of employee. Moreover, they must not be geared merely to prevent competition but only to protect legitimate business interests.
Limited in scope
Your noncompete agreements should be reasonably limited as to what it intends to prevent, and this should be dictated by the role of the employee.
When the noncompete involves a high-level employee with access to a great deal of confidential information, the agreement can be more restrictive. It could, for example, restrain the employee from working for even regional competitors for a period of several years after leaving your company.
For a low-level worker with only limited access to confidential information, the scope of the agreement needs to be narrower. You may be able to keep the person from working with direct competitors, but these would be defined narrowly.
Limited in geography and duration
As with scope, your noncompete agreements cannot restrict most employees from taking jobs with even tangential competitors for long periods. For example, a noncompete might not be enforced by the courts if it required a sales associate with access to customer lists to avoid jobs with any company in the nation who happens to have competing product. It would be even less likely to be enforced if the restrictions lasted for years.
Basically, courts will consider the level of the employee, their degree of access to confidential or proprietary information, the geographic reach of the noncompete agreement, the time period of the agreement, and any other relevant factors. Only if the restrictions are reasonable in light of the potential harm will the agreement be upheld.
There are other restrictive covenants that your organization can use to protect your proprietary information and investment in employees. You may also wish to include a non-solicitation agreement to prevent former employees from soliciting your clients. And, a confidentiality or nondisclosure agreement can work to keep what happens in your workplace a secret. Lawyers often make these agreements separate from one another to reduce the chance of a court finding the entire contract unenforceable.
To ensure that you can enforce your noncompete agreements, work closely with an experienced attorney to identify your goals and tailor the agreements to meet those goals without becoming unreasonable. Reasonable doesn’t mean ineffective.