In recent years, it has become increasingly common for employers to require their employees to enter into noncompete agreements. Generally, these agreements restrict an employee’s ability to work for a competing company in the same or similar industry and/or using the original employer’s trade secrets or goodwill. By its terms and design, a noncompete agreement restrains the employee’s future employment.
In Texas, the courts routinely enforce reasonable noncompete agreements. By statute, in fact, “a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.” Tex. Business & Comm. Code 15.50(b).
The increased use of noncompete agreements has led to significant disputes over their enforceability as employers seek to protect their business interests and employees attempt to leverage their skills and experience within an industry. To be enforceable in Texas, generally a noncompete agreement must:
- Be ancillary to another enforceable agreement (e.g., business sales contract, employment agreement)
- Be supported by consideration (the employer must give the employee something of value in exchange for the employee’s promise not to compete)
- Be reasonable in geographic scope
- Be reasonable in time
- Be reasonable in the scope of activity restrained
- Be tailored to protect the employer’s legitimate business interests
With each of these requirements comes room for disagreement and litigation, often requiring a case-by-case analysis of reasonableness. The answer may widely vary by employee position, employer, industry, and, of course, the specific terms of the noncompete at issue.