When might a non-compete agreement be unenforceable?

In Texas, non-compete agreements generally prohibit former employees from entering into direct competition with their former employers for a certain period of time.These restrictive covenants have long been popular for certain industries when they hire oexecutives and salespeople. However, courts have been skeptical about enforcing these when they unduly limit the job prospects of ordinary workers.

Non-compete agreements are contracts, and that means they have to meet all of the general requirements for enforceability. On top of those, Texas courts will only enforce non-compete agreements when they:

  • Are ancillary to an otherwise enforceable contract
  • Are reasonable in scope, geographic reach and duration

Does your non-compete agreement meet those requirements?

Being ancillary (connected to) an otherwise enforceable contract requires that something be given to the employee in exchange for signing the non-compete — and it may not be enough to offer employment (or continued employment) alone. Generally, you have to offer and actually provide something to the employee in exchange, such as access to proprietary information or specialized training.

Courts are also unlikely to uphold a non-compete if it is too restrictive in scope, geographical reach or duration. For ordinary employees without significant access to proprietary information, a non-compete agreement must be limited in how much it restricts former employees’ ability to work in their fields. For example:

  • The non-compete agreement may not prohibit all work in the industry
  • The non-compete agreement may not restrict the employee for more than a reasonable time (think one to two years; five at most)
  • The non-compete agreement may not prohibit work in too broad a geographic region

When the employee is a key member of the company or a high-level worker with significant access to proprietary information, the non-compete agreement can be somewhat broader. However, courts will still weigh the legitimate interests of the employer with the employee’s right to work.

What happens if the court finds my non-compete invalid?

In some cases, the courts may reform the agreement — strike any legally non-compliant language but leave the agreement otherwise intact. This can be problematic for companies because it means they will lose out on part of what they bargained for but still be required to meet their end of the bargain.

For a more predictable outcome, it is advisable to tailor your non-competes to the level of the employee, leaving plenty of room for the worker to work as long as it won’t affect your bottom line. Work with an experienced attorney to ensure your non-competes are considered reasonable.