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The Lone Star Showdown: The Challenge of Enforcing Non-Compete Agreements in Texas

October 4, 2023 - From our Texas Office

Deep in the heart of Texas, where everything is bigger – from the vast plains to the colossal skyscrapers – lies an often overlooked battleground in the world of employment law: the contentious arena of non-compete agreements. As an employer, you might think that a non-compete clause is a trusty sidekick, always ready to prevent employees from riding off into the sunset with your trade secrets. But hold onto your cowboy hat, because in Texas, enforcing these contracts isn’t as straightforward as a country ballad.

Why All the Fuss?

At their core, non-compete agreements are designed to protect employers. They’re provisions in employment contracts that prevent employees from working for competitors or starting competing businesses for a certain period after leaving the company. Sounds simple, right? Well, in Texas, it's a bit more complicated.

The Texas Business and Commerce Code § 15.50(a) is the chief statute governing non-competes. It states that for a non-compete to be enforceable, it must be "ancillary to or part of an otherwise enforceable agreement." This doesn't mean you can just slap on a non-compete to any ol' employment contract. There needs to be an existing enforceable contract to which the non-compete is supplementary. And that’s just the first hurdle!

Reasonableness is the Name of the Game

Even if the non-compete is found to be "ancillary to an enforceable agreement", it still needs to meet the reasonableness standard. The restrictions must be reasonable in terms of duration, geographical area, and the scope of activity to be restrained. Let's say you run a bakery in Houston and you have an agreement preventing an ex-employee from baking anywhere in Texas for the next decade. You might find a judge raising an eyebrow at such a broad restraint. Is it truly necessary to stop someone from baking in El Paso, nearly 750 miles away, to protect your business in Houston?

The Real Rodeo: Legitimate Business Interest

Texas courts have consistently held, through cases like Sheshunoff v. Johnson and Marsh USA Inc. v. Cook, that non-competes need to be tied to the protection of a legitimate business interest, such as trade secrets or confidential information. Mere desire to suppress competition won’t cut the mustard. If the primary goal is just to lasso former employees from competing, Texas courts are likely to give such agreements the boot.

The Blue-Pencil Salvation

Now, let's say you've crafted what you believe is a rock-solid non-compete, but the court deems it a tad too broad. All hope isn’t lost! Texas courts have the discretion to "blue-pencil" or reform non-competes to make them enforceable. So, while you might not get the full geographic or temporal restriction you hoped for, you could still get a version that passes muster.

Wrapping It Up: The Texas Tango

The Texas approach to non-competes is like a carefully choreographed dance. One misstep, and you could find yourself back at square one. As an employer in the Lone Star State, it’s crucial to recognize the challenges posed by non-compete agreements. While they can be a tool in your legal arsenal, they’re not the silver bullet many imagine them to be.

If you're considering implementing a non-compete in Texas, saddle up with a skilled legal partner who knows the Texas terrain. Because in this state, while everything might be bigger, when it comes to non-competes, it's all about being smarter.

This is not legal advice. Please consult with an attorney.

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