New Employees Beware — Noncompetes Can Be Enforced In Texas.
So, you are getting a new job. Congratulations. Did your new employer ask you to sign a covenant not to compete, what most people call a “noncompete,” when you were hired? If so, you probably have questions and have gotten a lot of advice from people about what to do. Many people seem to believe that noncompetes cannot be enforced in Texas. This is not true. You should be very careful about signing a noncompete.
The Texas Business and Commerce Code sets out the rules for whether or not a covenant not to compete is enforceable. The noncompete has to be ancillary to, or part of, an otherwise enforceable agreement, often an employment contract. It also has to contain “limitations as to time, geographical area, and scope of activity” that are found by the court to be “reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the” employer. Typical agreements that we see set a time limit of one to two years. They also set a geographic limit related in some way to the area in which the employee will work.
We caution employers and employees that that word “reasonable” used in the Texas statute is open to interpretation. What is “reasonable” for one person might not be “reasonable” for the next. What is “reasonable” in one industry or for one job position might not be “reasonable” for another. Also, even if the Judge finds that the noncompete is not “reasonable,” an employee is not off the hook. The statute says that the Judge “shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time, geographical area, and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill or other business interest of the promise.” In other words, the Judge must rewrite the noncompete and limit it in some fashion. The noncompete does not simply go away. The noncompete will be enforced by the Court after it is reformed.
This is only a very brief overview of the issues surrounding covenants not to compete. If you are thinking of signing a noncompete, we urge you to consult an attorney beforehand. If your business is considering requiring new hires to sign a noncompete, we also suggest that you consult an attorney with experience in this area of law.