What Voids a Non-Compete Agreement?

Originally published by Austin TX Business Law Blog.

In its most basic sense, a non-compete agreement is a legal contract put in place to prevent an employee from going to work for a competitor of his or her employer after leaving the business. Alternatively, and more formally, referred to as a covenant not to compete, this legal contract works as a barricade from an employee going to work for a competitor that is identified in the agreement either by name or description for a set amount of time and within a certain geographical area. Depending on the industry, employers requesting employees to sign a non-compete agreement is fairly common practice. While a non-compete agreement is supposed to be legally binding, there are certain instances where it can be invalidated.

What Voids a Non-Compete Agreement?

To be enforceable in Texas, a non-compete agreement must not only be ancillary to another agreement, but it must be reasonable. The reasonableness of a non-compete agreement is usually at the center of any court challenge that should arise. In fact, unreasonable terms are the most common reason for a non-compete agreement to be invalidated. Frequently, the terms of a non-compete agreement will be challenged based on being overly broad.

In a challenge of a non-compete agreement’s validity based on the reasonableness of terms, a court will review several different considerations. For instance, the court will weigh the potential harm to the employer. The employer has the burden of showing the potential harm. Additionally, the court will review the time period specified by the non-compete agreement to make sure it is reasonable when the type of job and level of the employee’s authority is considered. The geographical limitations established by the non-compete agreement will also be reviewed.

Another factor a court will consider in determining whether or not a non-compete agreement is valid is the impact the restraints of the agreement will have on the employee. It will be a hard sell that a non-compete agreement is valid if it prevents an employee from securing gainful employment or requires the employee to relocate in order to make a living. The court will even go beyond the impact such an agreement has on an employee and look to the interests of the general public. Some non-compete agreements have the potential to impact a broader population. For instance, if a non-compete agreement works to essentially dampen competition to the point where a monopoly would develop, a court would likely invalidate the agreement.

If a non-compete agreement is found to be reasonable, it may still be found to be unenforceable on other grounds. For instance, if an employee was tricked into signing the agreement, it may be voided. Being tricked into signing the agreement may have happened because the employer verbally promised you something in exchange for signing and then never made good on the promise. If you are ever promised something by an employer, make sure you try to get this in writing. Email the employer for written confirmation or clarification on the promise. Save the email in case you ever need it.

Business Law Attorney

If you are an employer looking to have your employees sign a non-compete agreement, you are going to want an agreement that serves your needs while not being unduly restrictive. The Kumar Law Firm can help you develop business agreements that protect you and are legally enforceable. Contact us today.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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