You cannot be forced to sign a non-compete. In general, most restraints on competition are unlawful under Texas law, but Covenants Not to Compete are an exception. Under the Texas Covenant's Not to Compete Act, a covenant not to compete may be enforceable if it is:
1. Ancillary" to another enforceable agreement; and
Some LLC Operating agreements have "restrictive covenants" and depending on State law, they may or may not be enforceable against their members. It's not clear if your LLC docs have such a provision. The fact that you are being asked to sign a non-compete now might indicate that no such provision was in you Operating agreement.
For example, If the Operating agreement had a provision disallowing members from leaving with a certain period of time without the consent of all members, she may want something in return for letting you go early.
There are really any number of plausible reasons why you might be asked to sign a non-compete, but again it must be "ancillary" to an enforceable agreement whether that;s the Operating Agreement itself or some agreement.
Whatever the case, a non-compete must also be "Reasonable". With respect to Reasonableness, a number of factors come into play:
1. The covenant's duration should relate to the LLC's business needs. For example, if confidential information provided to you while working on the old company's business model has real value for two years, then a two year non-competition restriction might be valid.
2, The geographical limitations should generally be no greater than the area in which you worked.
There are a good deal of reasons why her request might be overreaching and ill-advised and more then a few that might make complete sense.
I strongly advise you to contact a Business Law attorney to review your situation and get all the facts before making any decision to sign a potentially binding non-compete in Texas. Having "your" lawyer review a legal agreement does not need to make the situation confrontational - it's just good business.
Best of luck.
The posting attorney is admitted to the U.S. Tax Court and authorized to represent clients in all 50 states before the IRS. Outside of IRS matters, the posting attorney is licensed to practice law generally in the State of Texas and no other state. The information provided in this post is for general educational purposes only and should not be relied upon as legal advice by any party. No attorney-client relationship is formed with any party by the mere posting (or reading) of this information on the AVVO website. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency
You don't have to sign the non-compete. Whether she could cause you trouble in the future depends on a few things. It doesn't help matters that you guys never signed a Company Agreement. Or, to some extent, maybe it does. Who knows?
This time around, you should retain an attorney to form your company properly and provide you guidance on contracts and risk assessments. Only an attorney knowing more facts could help you.
The above statements are provided as general information and not intended as legal advice. Each matter has its own set of unique circumstances that cannot be adequately addressed without consultation. You are strongly advised to hire an attorney licensed to practice law in your state to represent you.
Your colleague cannot stop you from starting your own business or force you to sign a non-compete. Still, you should consult with an attorney about your exit strategy to address any potential intellectual property or trade secret disputes, in addition to any personal obligations you may have for debt incurred by the LLC.
There is no reason for you to sign such an agreement, especially when you are leaving the business. It limits your options and you get nothing for it. Your soon-to-be ex-partner gets all the benefits and no headaches from your competition. Even if you have no intention of competing with her, you should at least get some type of compensation for signing such an agreement. Just remember if you do, it is a contract and you could be sued for breach if you fail to fulfill your obligations.
This answer is provided for guidance only. Jennifer J. Clayton is an attorney licensed in Texas. She provides general information on Avvo.com. No attorney-client relationship arises out of the information given here.
LLC (limited liability company) Business partnerships Business contracts Non-disclosure agreement (NDA) Non-compete agreements for businesses Breach of contract Intellectual property Trade secrets Business Non-compete agreements and employees State, local, and municipal law LLC operating agreement