One of the most unsettling issues that clients come to me with involve interpreting non-competition agreements under Texas law. It’s probably one of the most misunderstood areas of employment law. People always ask questions such as – “Texas is a right to work state, how can they prevent me from working?” Or – “Didn’t indentured servitude go away years ago?” First, though Texas is, in fact, a “right to work” state, that phrase is taken out of context. That phrase has to do with whether or not a person can work for a unionized employer without being a member of a union (a discussion for a different day). Second, this issue has nothing to do with servitude but employers do have the right to curtail post-employment activity in certain situations.
The situation was significantly different years ago when virtually no judge in the courthouse would sign an order enforcing non-competition agreements in Texas, citing such factors as restraint of trade and public policy concerns. In the early 1990’s things started to change and non-competition agreements were more routinely enforced than they were in years past. Courts essentially stated that if non-competition agreements were ancillary to an “otherwise enforceable agreement” such as an employment agreement, and supported by independent consideration, the could be enforceable.
Since most non-competition agreements were ancillary to an otherwise enforceable agreement the question became whether the agreement was supported by consideration. “Consideration” is a legal term generally meaning in the sense of non-competition agreements, something given at the outset in exchange for the employee’s promise not to compete once the employment ends. Consideration as to be something of value which most people believe translates to money but this is not usually the case. Consideration can be the giving of confidential and proprietary information such as trade secrets, customer lists, formulas, etc., but can also be the promise to provide this information in the future. The point is that it is very easy for the employer to satisfy what is needed to make a Texas non-competition agreement enforceable.
Then the question becomes, if most agreements are enforceable, how do people get out of them? The answer is simple and is a heavy concentration of the service I provide to my clients trying to get out of non-competition agreements. The answer always revolves around what is known as the “standard of reasonableness.” The basic premise is that an enforceable non-competition agreement still must be reasonable to be fully enforced. A non-competition agreement that is not reasonable can be modified or “reformed” by a court to make it reasonable.
There are three main factors that a court will take into consideration to determine whether it is reasonable, time of the restriction, scope of the activity to be restrained and the geographical are involved in the restriction. For example, a non-competition agreement in Texas that purports to keep somebody out of an entire industry, nationwide for five years can be safely concluded to be unenforceable. Though I’m not going to be able to review all of the scenarios in this blog, the overriding premise is that a non-competition agreement will only be enforced to the extent reasonably necessary to protect the legitimate interests of the company seeking to enforce it. There isn’t an absolute answer to which non-competition agreements are subject to modification as that determination is usually made on a case by case basis relating to the specifics of the employment relationship. Its reasonable to assume that if you get laid off for economic reasons and you find a job in the same industry a non-competition agreement is less likely enforceable because there would be no legitimate interest preventing you from moving on in your career. On the other extreme, somebody who plans to compete for months before leaving their employer and collects a bunch of confidential data to take with them are likely to see their agreement enforced perhaps to the maximum provided for even if the above factors are overreaching.
If there is something to be learned from this, it is that every Texas non-competition agreement is looked at differently depending on the circumstances surrounding the employment relationship that it is based on. Don’t think that just because you have a non-competition agreement that you are precluded from working anywhere else but by the same token don’t think that even though you have one, it can’t be enforced against you. My firm reviews and litigates non-competition agreements as a regular part of its practice and we will be happy to assist anybody who would like help with theirs.