Non-compete agreements are popular mechanisms to restrain competition of both current and former employees and can be effective documents to obtain an employee’s pledge of loyalty and commitment to the company. Employers wishing to prevent their employees from working for a direct competitor during and after the term of employment may draft these agreements in an overly broad manner to deter employees from taking competing action. Furthermore, the statute governing restrictive covenants dictates that courts “shall reform the covenant to the extent necessary to cause the limitations contained . . . 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.” Tex. Bus. & Com. Code § 15.51(c). This means that a court can still uphold reasonable restrictions even if the original agreement was overly burdensome and too broad.
Covenants not to compete are enforceable if they are ancillary to or part of an otherwise enforceable agreement to the extent they contain limitations as to time, geographical area, and scope of activity. Tex. Bus. & Com. Code § 15.50(a). However, the analysis for reasonable limitations is heavily fact driven. Every industry carries with it a different set of considerations for what constitutes reasonable restrictions.
Factors to determine the enforceability of a non-compete agreement include:
- Whether the employee held an executive level position
- Duration of the restriction on competing activities
- Whether the non-compete contains a geographic restriction on the territory for which the non-compete applies
- Type of consideration involved
- Scope of activity restricted
- Public policy considerations
- Industry, skills, and ability to provide for oneself while complying with the restrictive covenants
- \Whether the non-compete is ancillary to or part of the existing employment agreement
- Whether the non-compete is protecting goodwill or other legitimate business interest
Employers are entitled to initiate legal proceedings upon employee’s breach. Thus, even if a court ultimately invalidates the agreement or reforms the covenants, employees are still stuck defending their actions in court which is both time consuming and costly. Here at Fears | Nachawati, we have drafted and analyzed numerous non-compete agreements. Contact one of our experienced business attorneys today to review your non-compete agreement to see how you can negotiate or to assess where your exposure lies as a former employee subject to a non-compete.