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Is Your Non-Compete Agreement Enforceable?

Today it is not unusual for an employment contract to contain either a non-competition clause or a non-competition agreement. A non-competition agreement allows an employer to restrict an employee's post-employment opportunities by restricting the ability to immediately work for competitors or form a competitor. However, for non-competition agreements to be enforceable in Texas they must follow specific statutory guidelines. Here, at Taylor Dunham and Rodriguez LLP we pride ourselves on being experts in this area of the law and are often retained by businesses, as well as executives and employees, to handle legal disputes regarding non-competition agreements.

While Texas frowns on non-competition agreements as a matter of public policy because it restricts competition, Courts will enforce a non-competition agreement if it follows the guidelines laid out by the Texas Legislature in Texas Business and Commerce Code § 15.50. Here, the legislature requires the non-competition agreement to be an ancillary document to the contract or part of an already enforceable agreement. Further, limitations on "time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary." Texas Business and Commerce Code § 15.50 (a). In clearer terms, the non-compete provision may not be overbroad in the type of restrictions on future employment or business activity, must not be unreasonable in the amount of time that a party is prevented from competing and must set forth reasonable geographical restrictions on competition.

This leaves a two-pronged test in determining the enforceability of a non-competition agreement: (1) is the agreement enforceable and (2) are the restrictions reasonable? For an agreement to be enforceable there must be consideration. It is important to know that mere employment is not enough to be valid consideration as it is an illusory promise because employment can be terminated at any time. Therefore, an employer must give something more such as a stock option, bonus, access to secret information, etc. in order to create consideration and failure to do so may cause the non-competition agreement to be deemed unenforceable.

The reasonableness prong is a highly factual analysis that depends on a variety of factors such as the occupation of the employee, the location of the employer seeking to enforce the non-competition agreement, the trade secrets at stake, etc. If the court decides the non-competition agreement is unreasonable in time, area, or scope of activity, the Court may reform the non-competition agreement to have it conform with the statutory guidelines.

Due to the complexity of non-competition agreement litigation, it is critical you have experienced counsel. Here, at Taylor Dunham and Rodriguez LLP we have litigated non-competition agreement claims and defenses through injunction hearings, as well as through jury trials. So, if you are involved in a dispute involving the enforceability of a non-compete agreement, do not hesitate to contact Taylor Dunham and Rodriguez LLP for experienced legal assistance.

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