Originally published by Paul Romano.
As is the case in most states, Texas law generally disfavors restrictions on employee mobility. As an “at will” employment state, Texas employment law ordinarily allows an employer or an employee to terminate the employment relationship at any time, for any reason, and without any penalty or restriction. Is it fair, however, for an employee to leave the employment and take with him or her vital information that can be used by a competitor?
Texas tries to balance the interests of the employer and the employee, allowing non-compete agreements under the provisions of Texas Business and Commerce Code § 15.50. All too often, however, the non-compete agreement is improperly drafted, making it difficult or impossible to enforce. Here are five common errors made in drafting Texas non-compete agreements.
Error 1: Inadequate “Consideration”
Under the statute, the consideration given by the employer must (1) give rise to the employer’s interest in restraining the employee from competing, and (2) the covenant must be designed to enforce the employee’s return promise. The clearest type of consideration that satisfies this requirement is an employer’s promise to give the employee confidential information or trade secrets in exchange for the employee’s promise not to disclose such information. Thus, if the employer requires its maintenance folks to sign a non-compete, but never shares any confidential information with them, a court will likely say the employer has no interest to protect and will not enforce the agreement.
Error 2: Non-Compete Limitation is Unreasonable as to Time
A court will not enforce a non-compete agreement if the time limitation contained in the agreement is too long. How long is too long? It generally depends upon a number of factors. What may be reasonable in some industries or trades may be unreasonable in others. This is an area in which the advice of experienced legal counsel can be invaluable.
Error 3: The Agreement is Unreasonable as to Geography
As with time limits, the geographical limits must be reasonable. If the agreement restricts the employee to an area larger than the current area being served by the employer, a court will likely refuse to enforce it. Here again, “reasonable” can vary from industry to industry.
Error 4: Non-Compete Agreement is Too Broad in Scope of Limitation
This error often arises from the use of downloaded “form agreements.” A non-compete, particularly one that is executed in Texas, is never a one-size-fits-all scenario. Forms, by their nature, attempt to cover a topic broadly. In doing so, the agreement can be so expansive that it offends the sensibilities of the court that is being asked to enforce it. Remember: The United States outlawed indentured servitude 150 years ago. Texas courts do not favor paper shackles any more than iron ones.
Error 5: Failure to Include Other Important Matters, Such as Assignability of the Agreement
All too often, the employer is so focused on the issue of tying up the employee that it forgets that there are other important considerations to be handled as well. For example, if there is even a remote possibility that the business might be sold or merged with another, the non-compete agreement needs to contain a provision allowing the agreement to be assigned. Otherwise, the employee may not be obligated to the new owner at all.
Experienced Legal Counsel is Key to Enforceable Non-Compete Agreements
Does your business need one or more non-compete agreements to help protect your interests? Are you concerned that key employees might take proprietary information with them when they leave? Do you have other related concerns? The attorneys at Romano & Sumner have more than 20 years of combined experience providing expert legal assistance to clients. We represent clients in all types of transactions and we have extensive experience in litigation. We pride ourselves not only for our professionalism, but also for our client service. We return phone calls within one business day. We keep clients informed. We complete the work within the allotted time frame. Call us at 281-242-0995 or complete our online contact form.
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