The State of Texas will generally frown upon contracts and other business arrangements that restrict employees from changing jobs as they see fit. Free enterprise is big in Texas and the state approaches any potential restrictions on trade or commerce with great trepidation. In fact, the Texas Free Enterprise and Antitrust Act of 1983 deems unlawful any contract or agreement that restrains trade or commerce, with certain exceptions being made. The exceptions allow for a balance between free trade and businesses still being allowed to take steps to protect their interests. With this being said, are non-compete agreements in Texas enforceable even though they can be viewed as a restraint on commerce and freedom of employees’ mobility?
Are Non-Compete Agreements in Texas Enforceable?
In a non-compete agreement, the employee is agreeing not to engage in competing with the employer which usually means the employee cannot be employed by a competitor during employment or after employment with the employer in the non-compete agreement. In Texas, businesses are in a position to negotiate such contracts, which are sometimes known as covenants not to compete, and the agreements can be found to be valid and enforceable.
In order to be considered enforceable in Texas, a non-compete agreement must fall within certain parameters. This is because, while such restrictive agreements may be valid in Texas, Texas courts have acknowledged that overly broad restrictions on the mobility of employees can be harmful to the free market. Because of this, non-compete agreements are only enforceable in Texas if supported by valid consideration and there are only reasonable restrictions on time, geographic scope, and activities set forth in the agreement.
In regards to geographical scope, a reasonable geographical scope will generally include the area where the employee worked for the employer. An agreement’s attempt to restrict location beyond that scope risks being overly broad. If found to be overly broad and, thus, unreasonable, the non-compete agreement may not be enforceable.
The duration of the non-compete agreement cannot be unlimited. While there is no set time frame for what would be considered a “reasonable” duration, it can be agreed upon that an unlimited restriction on competition would most certainly be unenforceable. The reasonableness of duration will depend on a number of factors, including the business’s industry and market, as well as the employee’s role in the company, among other factors.
Again, with restrictions on the scope of activity in a non-compete agreement, there are no set parameters on what will be found to be reasonable. Generally speaking, a court is likely to honor an agreement that restricts the employee from making contact with existing customers. Furthermore, a court is likely to be okay with a restriction on an employee going to work for competitors, depending on whether the time and geographic scope are reasonable as well.
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Non-compete agreements can be valuable business tools when properly drafted and utilized. For a non-compete agreement and other business agreements that are solidly executed to protect the best interests of your business, The Kumar Law Firm is here to help. Contact us today.