Basics of a Non-Compete in Texas
Non-compete agreements in Texas are governed by Section 15.50 of the Texas Business and Commerce Code (Covenant Not to Compete Act). Pursuant to the Act, a non-compete is enforceable if: (1) it is ancillary to an enforceable agreement and (2) has reasonable limits to time, place, and scope.
The Agreement must be ancillary to or part of an enforceable agreement.Consideration is key here. For example, a contract for at-will employment, by itself, is not an otherwise enforceable agreement because neither side is bound by it. With that stated, in determining what constitutes consideration, courts in Texas will consider not just the provision of money, but also things such as trade secrets, confidential information, or goodwill.
The Agreement must have reasonable limits as to geography, time, and scope of activity.While that review is contextual, a duration of 1 to 5 years is generally considered reasonable. Geographic scope is usually considered reasonable if it accounts for the prior area in which the employee worked. In addition, the scope of the covenant should not exceed the scope of the employee's duties while with the employer.
Court reformation of the non-competeThe absence of reasonable limits may render the covenant unenforceable as written. However, even if limits are unreasonable, the Covenant Not to Compete Act still provides some measure of relief to a party seeking enforcement. Specifically, in the event of unreasonable limitations in the agreement, a court addressing the same is tasked with reformation of the covenant so as to create reasonable limitations.
DisclaimerThe materials in this guide have been prepared for general informational purposes only. The information is not independent legal advice and does not create an attorney-client relationship. Should you wish to draft or interpret a non-compete advice from an attorney is advised.