When Is a Texas Non-Compete Clause Valid?
Austin, TX (Law Firm Newswire) January 14, 2019 – Non-compete clauses can be valid, but businesses should be careful in how these agreements are drafted.
Hiring and training a new employee is a major expense for many Texas businesses, especially for small and medium-sized businesses. When a business hires an employee, it is not uncommon for the company to ask the new hire to sign a non-compete agreement.
A non-compete agreement is a type of contract in which an employee agrees that they will not seek employment with a competitor within a certain amount of time after their employment terminates. Non-compete agreements are designed to protect a company’s goodwill and trade secrets and are enforceable by Texas courts if they are properly drafted. For a Texas non-compete agreement to be valid it must be:
· Supported by consideration; and
· Reasonable in time and geographic scope and the activities that are restrained.
In a recent Texas business law case, the court was presented with the opportunity to discuss non-compete clauses and what constituted “reasonableness” when it comes to the geographical scope of a non-compete clause.
According to the court’s opinion, the case involved an employee who was in the business of medical equipment sales since 2002. In 2013, the employee accepted a position with the Texas employer that is also a party to the instant dispute. Before starting the new job, the employee signed a non-compete agreement. The agreement provided that the employee would not work for a competitor of the employer for one year after her employment was terminated. The agreement applied to “any state or geographical territory in which employer is conducting, has conducted or anticipates conducting its business.”
The employee left her position with the employer in 2016 and immediately began working with a Florida company that also sold medical equipment. Upon discovering this, the employer filed a breach-of-contract claim against the employee, requesting an order that the employee immediately cease competition with the employer.
The employee filed a motion for summary judgment, challenging the geographic scope of the non-compete clause. Specifically, the employee argued that the geographic scope only considered the employer’s business and did not have any relation to her own involvement within either company. The employee claimed that the non-compete clause was essentially an “industry-wide prohibition” in that it was too broad. The trial court agreed with the employee, and the employer appealed to a higher court.
On appeal, the court began by clarifying that the only issues involved in the case were whether the geographic scope of the non-compete clause and the restriction on the scope of activity were reasonable. The court explained that the guiding factor in assessing the validity of a non-compete clause is whether it “impose[s] a greater restraint than is necessary to protect the goodwill or other business interest of the [employer].”
Generally, the court noted, the areas where an employee worked for her original employer will be considered “reasonable” when it comes to the geographic scope of a non-compete clause. However, non-compete clauses that apply to areas where the employee never worked are generally disfavored. Here, the court noted that the employer did not present any evidence showing where the employee worked. In addition, the court pointed out that it would be difficult for the employee to know where the employer “anticipates doing its business” in the future. As a result, the court held that the geographic scope of the non-compete clause was greater than necessary to protect the valid interests of the employer.
Moving on to the scope of restricted activity, the court explained that a non-compete agreement involving a salesperson is “overbroad and unreasonable when it extends to clients with whom the employee had no dealings during his [or her] employment.” Here, the court held that the scope of restricted activity was too broad in that it prohibited the employee from soliciting clients whom she had no interaction with while working for the employer.
Austin trial attorney and commercial litigation attorney Gregory D. Jordan reminds businesses that Texas employment contracts containing non-compete clauses should be tailored to the situation at issue. As the discussion above illustrates, courts can take a very fact-specific approach when reviewing the enforceability of a non-compete agreement. Thus, business owners should resist taking a one-size-fits-all approach when it comes to non-compete agreements and should work with an experienced Austin business law attorney to ensure their interests are protected.
At the Law Offices of Gregory D. Jordan, Attorney Jordan represents both employers and employees in all types of Texas employment lawsuits and arbitration matters. Attorney Jordan has over 30 years of relevant experience helping businesses confront the legal issues they are facing throughout Travis County and Central Texas. Contact the Law Offices of Gregory D. Jordan at http://www.theaustintriallawyer.com/.