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CAUTION: The information on this webpage and website does not constitute legal advice. The purpose of this information is to provide GENERAL information to the public and to raise awareness of Texas employment laws for Texas employees. DO NOT read anything here and make a decision affecting your legal rights, such as a decision not to pursue a lawsuit or to file a lawsuit, without first consulting a lawyer. ONLY your own individual attorney can provide you with legal advice and properly inform you of your rights and remedies under the law. This website does not guarantee the accuracy of any of the information provided within it. Finally, this information only applies to Texas employees, as employment laws differ greatly from state to state.
This is not legal advice.
General Legal Concepts of Texas Non-Compete Agreements
The law regarding the validity and enforcement of non-compete agreements in Texas has changed drastically in the last three years. Prior to 2006, Texas courts had many reasons by which they could find a non-compete agreement to be unenforceable and routinely found non-compete agreements unenforceable on a variety of grounds. However, since 2006, two cases of the Texas Supreme Court-Alex Sheshunoff Management Services, L.P. v. Kenneth Johnson and Strunk & Associates (Tex. 2006) and Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding (2009)-have dramatically changed the legal landscape. Following these decisions by the Supreme Court of Texas, Texas courts will be much more likely to enforce non-compete agreements.
The basic requirements for a non-compete agreement to be enforceable in Texas are found in Section 15.50(a) of the Texas Business & Commerce Code. This Code contains two basic requirements:
Non-competes for physicians have additional requirements to those listed above.
Prior to the recent decisions by the Texas Supreme Court, non-compete agreements were often found unenforceable because they were not made “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.” That requirement provides (1) that an employer provide something to an employee that gives rise to its interest in restraining the employee (for example, trade secrets or a customer list) and (2) that the non-compete be designed to enforce the employee’s promise or consideration. Now this requirement can be easily satisfied, even in the at-will employment context. Nevertheless, this requirement will prevent some non-compete agreements from being enforceable.
Texas courts have consistently required covenants not to compete to be reasonably limited as to time, geographical area, and scope of work. While there is not a brightline rule as to what limitations are reasonable, courts have often-but not always-upheld non-competes that limit competition within the geographic area where an employee worked, are one to two years in length, and are related to the type of activities the employee performed for the employer. As the court’s determination on the reasonableness requirement is highly fact specific, different non-compete agreements will lead to varying rights and restrictions for the employers and employees involved.
In conclusion, the validity of a non-compete agreement is based on a number of factors and is subject to an area of law that is constantly changing. Moreover, in some cases, Texas employees will be subject to the laws of other states regarding non-compete agreements. To determine the validity of a specific covenant not to compete, an employee should consult with a lawyer.
Often employers require employees to sign agreements that the employee will not solicit customers or fellow employees after the termination of employment. Depending on the language of such an agreement or clause, courts may treat such agreements as non-compete agreements subject to the requirements stated above. In other cases, such an agreement may only be subject to the rules of contract law, and their validity will be based on whether a binding contract was entered into between an employer and employee.
Awards in Non-Compete Litigation
In an action to enforce a non-compete, an employer may recover damages caused by violation of the non-compete, as well as attorneys’ fees. An employer may also seek injunctive relief, receiving a court order preventing the former employee from continuing to work in competition. Often employers seek to obtain this relief at the outset by requesting a hearing for a temporary injunction. In certain circumstances, a prevailing employee may be able to recover attorneys’ fees for successfully defending himself against an employer in a non-compete action. However, these circumstances are limited, and recent decisions of the Texas Supreme Court appear to limit those circumstances.
Representation in Non-Compete Litigation
The Martinez & Martinez Law firm represents employees who have been sued or threatened to be sued by their former employer on the basis of employee agreements. While non-compete law has changed dramatically to generally favor the enforcement of such agreements, an employee that has signed a covenant not to compete still has some defenses to enable her to compete and seek the employment she desires. As every case is different because of the variety of employment agreements and situations that exist, if you have issues with a non-compete you have signed, you should consult with a lawyer to determine your specific legal rights.