Reformation of Texas Noncompete Agreements

Often in litigation involving noncompete agreeents, an employee bound by a noncompete agreement will contend that the scope of the restrictions contained in the agreement are overly broad. The employee may, for example, argue that an agreement prohibiting customer solicitation is too broad. Or, an employee may argue that a covenant not to compete is too restrictive; e.g., the employee may allege that the restrictions last too many months or years, or that the geographic restrictions are unreasonable.

A recent Texas appellate case concerned a noncompete agreement that contained no geographic restriction. Rather, the agreement stated that the employee would “not work for a competing third party for the term of one year.” The agreement further stated that the employee would “not start a publication outside of [his employer] for a term of one year.”

The Texas appeals court refused to invalidate the agreement. Instead, the court—although it found that the agreement was “overbroad and unenforceable”—reformed the agreement. The court noted that the Texas noncompete statute requires a court to “reform . . . [an overly broad] covenant to the extent necessary to cause the limitations to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill or other business interest of the promisee and enforce the covenant as reformed.”

In this case, rather than invalidating the covenant because it contained no geographic limitation, the court reformed the agreement to prevent the employee from competing in the same territory in which he worked while he was with his former employer. While with his former employer, the employee had been a salesperson in Johnson County; the appellate court held that the employee could be prohibited from competing there.

However, the court refused to preclude the employee from competing in areas into which his former employee had planned to expand. The court held that such a restriction would be unreasonable.

The takeaway from this case is: Don’t assume that just because a noncompete is too broad, a court is likely to invalidate it. Texas courts often reform overly broad noncompete covenants by making them reasonable.