Typically, an agreement (or "covenant") not to compete is one of many provisions contained in a multi-paged contract, such as an employment agreement. Texas courts have held that, to be enforceable, a covenant not to compete must:
• Be part of an "otherwise enforceable agreement"
• Be "ancillary" to that otherwise enforceable agreement
• Be reasonable in scope
If all three of these requirements are met, a covenant not to compete will be enforceable in Texas.
Otherwise Enforceable Agreement
This is the first requirement that must be met for a non-compete agreement to be enforceable. To determine whether an "otherwise enforceable agreement" exists, it is necessarily to ignore the covenant not to compete contained in the agreement and, with respect to the remaining provisions in the agreement, ask whether both the employer and the employee are each making at least one binding promise.
Employment agreements usually contain several promises. For example, the employer may promise to train the employee, or to provide the employee with confidential information. Or, the employer may promise to employ the employee for a definite period of time. On the other side, the employee may promise to work for a certain period of time. The employee may also promise not to disclose the employer's confidential information to others.
To determine whether the "otherwise enforceable agreement" prong of the test is met, it is necessarily to draw a line (with a pencil) through the Texas non-compete portion of the agreement and ask the following question about the provisions that remain: Are both the employer and the employee making at least one binding promise to each other? Usually, the answer will be yes. This requirement would be met, for instance, if the employer promised to provide confidential information to the employee and the employee promised not to disclose it to others.
In the rare case in which this requirement is not met, there cannot be an enforceable non-compete agreement.
Ancillary
If an otherwise enforceable agreement exists, the next question is whether the covenant not to compete is "ancillary" to the otherwise enforceable agreement. For this requirement to be met, two things must be true. First, the consideration given by the employer in the otherwise enforceable agreement must "give rise" to its interest in restraining competition. Second, the covenant not to compete must be designed to enforce the employee's "reciprocal" promise in the otherwise enforceable agreement.
Texas courts have routinely held that if an employer provides confidential information to its employee, and if the employee promises not to disclose this information to others, the ancillary requirement is met. Of course, in every case, a pertinent question will be whether the amount and type of confidential information given by the employer to the employee justifies the particular restrictions in question. A related question is whether the information provided by the employer, even if it once was confidential, remains so. Over time, information that once was confidential can become obsolete (or "stale," as courts sometimes say).
Scope
If the Texas non-compete covenant is ancillary to an otherwise enforceable agreement, the final requirement is that the scope of the restrictions (in terms of activities restrained, geographical limitations, and duration of the restrictions) be reasonable. The duration of a covenant can be too long to be enforceable. Moreover, the geographical restrictions can be too broad, particularly if the employer is attempting to restrict the employee in geographical areas in which the employee never worked for the employer. Of course, if the restrictions are overly broad in scope, the court should modify them to make them enforceable.
OUR SERVICES
At Fell & Wood, LLP, we represent both companies and individuals in disputes involving Texas non-compete agreements. We advise individuals who are bound by Texas non-compete agreements. We advise companies who are contemplating hiring individuals who are bound by Texas non-compete agreements. We also represent companies whose former employees have violated their Texas non-compete agreements. In addition to handling claims involving the Texas non-compete agreements themselves, we also handle related tort claims including breach of fiduciary duty, misappropriation of trade secrets, and tortious interference with contract and prospective business relations.
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Contact the Dallas Texas non-compete agreement lawyers at Fell & Wood, LLP today at 972-488-8177 for a no-obligation telephone or in-person consultation. Most cases can be handled on a contingency fee so that you only pay attorney fees if a recovery is obtained.
