How to Draft an Enforceable Non-Compete Contract in Texas
SLG's Jack Siegel provides a brief guide to the basic elements you need to include to draft a legally enforceable non-compete agreement.
Rule Number 1: Stand Alone Non-Compete Provisions UnenforceableNon-Compete Covenants covenant to be "ancillary or part of an otherwise enforceable agreement" and will uniformly declare stand-alone non-compete covenants unenforceable. In order to make your non-compete provision enforceable, ensure you include a non-competition covenant within a larger enforceable agreement, such as an employment contract
Rule Number 2: Contemperaneous Consideration RequiredIn order to fulfill this element, an employer must provide some sort of consideration (legal word for promise or benefit) in exchange for an employee's promise of non-competition. The Texas Supreme Court has uniformly held that mere at-will employment does not constitute adequate consideration for a non-compete covenant. Employers, however, may make a non-compete agreement enforceable if they offer the following at the time of non-compete execution: (1) Bonuses; (2) Promotions; or (3) confidential or proprietary information. Many employers prefer to explicitly offer confidential or propriety information (such as customer lists) as consideration because the provision of confidential information (1) would have been provided to the employee regardless of the non-compete covenant; and (2) the confidential information costs the company nothing. Additionally, labeling this information as "confidential" or "proprietary" in the initial employment contract can help define the scope of any potential trade secret claims you may have against the employee.
Limitation of Geographic, Temporal and Activity ScopeTexas Courts will not enforce non-compete agreements that fail to provide geographical, temporal and activity restrictions. An employer must base these restrictions based on the job duties of their employee. For example, a non-compete agreement which restricts a salesman from selling "any sporting goods" across the State of Texas will not likely not hold up if he exclusively sold footballs exclusively to stores in Dallas, TX. The activity and geographical restrictions in that example provide an unreasonable restriction on the former employee's right to earn a living, rendering the agreement unenforceable. Moreover, courts often restrict the duration of non-compete clauses. Courts often limit the duration of such non-competition to two to tree years