Non-Compete Agreements in Texas

In Texas your employer may ask you to sign a non-compete agreement, also known as a restrictive covenant or covenant not to compete, at some point in your employment. Non-compete agreements restrict your ability to use the employer’s trade secrets, sales techniques and customer base in competition with your current employer. Texas courts enforce non-compete agreements if they meet specific requirements. Before signing non-compete agreements you should talk to a Texas employment lawyer. It is important to understand the limitations you may agree to in the covenant and whether the covenant may be enforceable if you leave your current job.

What is a non-compete agreement?

By signing a non-compete agreement you agree to restrictions on your future employment in the event you leave your current job to restrict you from using your current employer’s business practices to your benefit or a competitor’s benefit. Typically a non-compete agreement in Texas may restrict your future use of your employer’s:

Customer or client lists
Sales techniques and sales materials
Proprietary techniques or equipment used to produce their goods or services
Advertising and marketing data about its sales market
Pricing policies
Specialized knowledge and training provided by the company to you

To prevent you from using this proprietary information, non-compete agreements can limit your ability to gain employment in the same marketplace or start a competing business in that space. As we will discuss below, an enforceable non-compete agreement in Texas cannot limit you endlessly from seeking other employment.

Are non-compete agreements enforceable in Texas?

Although Texas law generally disfavors anti-competitive agreements, Texas courts often enforce non-compete agreements when they meet certain requirements. If the court finds the non-compete agreement is enforceable, it will enforce the restrictions against you.

In Texas, an enforceable non-compete agreement must:

Be ancillary to another enforceable agreement–such as an employment contract;
Protect a legitimate business interest;
Be reasonable in the limits it places on your future activities;
Have reasonable geographic limits for that restriction; and
Be reasonable in duration.

Generally, non-compete agreements can only limit your activities within the scope of your employer’s business or market. The non-compete agreement is enforceable only to protect the employer not to punish or prevent you from leaving.

Any limitation on your future opportunities must be reasonably limited in both time and space. Non-compete agreements cannot prevent you from working everywhere or prevent you from working for a competitor for an extended period of time.

What is “reasonable” about these terms depends on the particular language of the agreement and the competitive edge your employer seeks to protect. What might be reasonable for one person could be unreasonable for the next. An experienced employment lawyer can evaluate your situation and advise you on the reasonableness of a non-compete agreement.

How can my employer enforce a non-compete agreement in Texas?

In Texas, your employer can enforce a non-compete agreement against you in court to obtain an injunction and monetary damages.

If the non-compete agreement is determined enforceable, the employer can ask the court for an injunction. An injunction is a court order preventing you from doing something. An injunction involving a non-compete agreement could prevent you from continuing to work for a competitor or operating a competing business. A future employer may also fall within the injunction and have to fire you to comply with the injunction. If you start a business that has to stop operating under an injunction, you could lose your investment in the business.

Additionally, the employer can seek money from you to make it whole for any business losses suffered due to your competition. You could potentially face a substantial judgment that may require you to pay a large sum to the business or declare bankruptcy.

If the employer finds out you intend to leave to work for a competitor, it can also use the non-compete as leverage to prevent the business from hiring you. Sometimes employers use non-compete agreements with cease and desist letters to deter a prospective employer or to motivate a future employer to let you go.

How can I stop my employer from enforcing a non-compete agreement?

The best time to minimize or avoid the consequences of a non-compete agreement are before signing one; but you may have signed one when you started your job or when you accepted a promotion. Unfortunately, if you signed an enforceable non-compete agreement, the employer has the right to protect itself under the terms of the contract.

If it is unclear whether a non-compete agreement is enforceable, or what exactly it prohibits, you can file a special kind of lawsuit to ask the court to determine whether the non-compete agreement is enforceable and whether it would prohibit what you desire.

If your employer tries to enforce an unenforceable non-compete agreement, or threatens a future employer with the non-compete agreement, and that causes you to lose a jobyou may be able to file a lawsuit for interfering with your employment.

The best thing to do if you signed a non-compete agreement is to discuss the covenant and your plans with an experienced employment attorney. Your attorney can help you understand your options and the consequences of each path. Even if you can successfully sue your employer and defeat the non-compete agreement, it may cost you more in the long term to act and then figure out your legal rights.