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When is a non-competition agreement enforceable?

If you are a business owner, you know that some of your employees have access to confidential information about your company. You may be worried that they will divulge that information to your competitors if they hire them after they finish working for you. Fortunately, you can prevent this by establishing a non-competition agreement with them. With this agreement, you can ensure that your former employees won’t work for your competitors for a specific amount of time. However, these agreements can be hard to enforce as they must comply with the law’s requirements.

Non-competition agreements in Texas

As an employer, you can protect your business interests by putting restrictions on your employees when they leave your company. This can be done through a non-competition agreement. The objective of non-competition agreements is to limit where your employees can work after they terminate their employment contract. Non-competition agreements indicate how much time an employee has to wait to work for a competitor, as well as the specific geographic location where they can do so. These contracts will also allow you to dictate what activities your former employee can do for another.

Enforceability

The problem with non-competition agreements is that they can be unfair to the employee if their limitations are excessive. Unfair agreements cannot only leave the employee at a disadvantage, but they can also affect the free market and employees’ mobility. Because of this, the Texas Business and Commerce Code states that the court can only enforce non-competition agreements if they comply with specific requirements. An agreement is valid if:

  • It is part of another enforceable agreement (like a confidential agreement)
  • It contains reasonable limitations as to time, geographical area and scope of activity
  • The employer can prove the need for such an agreement

An agreement will not be valid if it imposes a greater restrain than necessary to protect your business interests. The restrictions must make sense depending on the nature of the job of your former employee.

Breach of contract

If an employee breaks the agreement, the court can award the employer both damages and injunctive relief.  However, if the employee proves that the agreement was unreasonable, the court will not enforce it, and the employer will have to pay the attorney’s fees of the employee. An employer can take legal action against an employee within 4 years of a violation of the agreement.

Protecting your company

A non-competition agreement can prevent your former employees from divulging valuable information to your competitors. However, you must keep in mind that non-competition agreements can be hard to enforce. You can also protect your interests by writing a confidential agreement instead. With a confidential agreement, you won’t be able to control for whom your former employees work. However, you can restrain them from giving important information about your company to third parties. The agreement you decide to draft will depend on your company’s needs and the scope of protection you are looking for.