If you run a small business you look to control expenses wherever you can. And if you are going to ask your employees to sign a non-compete agreement, you are probably tempted to use a templated noncompete agreement rather than paying an attorney to draft one for you.
Here are our two cents: It’s going to be much more costly for you to have an unenforceable non-compete agreement than to pay a qualified attorney a one-off fee for one that you can actually enforce.
What Is a Non-Compete Agreement and Why Is It Used?
A non-compete agreement is a contract between two parties that prohibits one of the parties from competing with the other. Generally, between an employer and employee, these agreements restrict the employee from engaging in any business activity that conflicts with the employer’s business interests. If non-compete clauses are not in place, the company may risk its proprietary information and lose its client base. These agreements are shields for the employers and impact their employees while working and post-employment.
What Is a Non-Compete Agreement Template?
A non-compete template is a preformatted document with non-compete contractual language. It is a shortcut, fill-in-the-blank agreement. However, as with many shortcuts, crucial elements of valid and effective non-compete agreements can be missed when templates are used.
Given the nature, importance, and legal technicality of non-competes, you should avoid using a template. Instead, an attorney can create a thorough, enforceable non-compete agreement specific to your needs. Let’s look at some of the particular reasons you should not use a template for your Texas non-compete agreement.
What Are the Pitfalls of “Free” Texas Noncompete Templates?
Non Compete Templates May Not Take into Account Up-To-Date Local Laws
While templates often advertise that they are state-specific, that does not guarantee that the template will be enforceable in Texas. To be binding, non-compete agreements in Texas must follow current legislation, case law, and contract standards. As a noncompete template may not take all of these into consideration, it may not be your best option.
Texas has court history regarding how judges have interpreted various non-competes and how they view their enforceability. Local attorneys who practice contract law are aware of how Texas courts analyze these agreements. A template may not take this into account. Also, state laws vary, and they are updated at different times. Texas may have recent court decisions regarding non-competes that are not addressed by a template.
A Template May Not Address Every Required Aspect of a Non-Compete
Non-compete agreements fall under a specialized area of contract law. There are elements these contracts must have, such as offer, acceptance, adequate consideration, capacity, and other legal specifications. If these legalities are not included and accurate, the contract is not valid. A template may not guarantee the legally correct inclusion of these elements. Nor is it able to evaluate whether those signing the contract have the right and legal capacity to do so.
Also, if an employee challenges the agreement, a court will examine whether the scope of the non-compete is reasonable. In other words, the court will decide if the degree to which a company limits an employee via the non-compete is greater than necessary to protect the business’s legitimate interests. Attorneys will help you appropriately narrow the scope of the agreement to specific industries and regions in Texas.
A template may not take your individual circumstances into account. Without accurate consideration of scope and other legalities at the formation of the agreement, the contract may be unenforceable.
Non Compete Agreement Templates Are Not Created for a Specific Business or Individual
Templates are not individualized and do not address a company’s specific needs. There are crucial clauses necessary in some non-competes that will not be relevant for others. Examples of company-specific content in a non-compete, possibly not addressed by templates, include:
- A company doing business in more than one state or internationally will need to address in which court(s) legal action will be taken if the contract is violated;
- How a company’s change in ownership will impact the non compete;
- For businesses in healthcare, buyout clauses for their physicians is a necessary clause;
- If a company has trade secrets, this will require special attention in the agreement; and
- The extent to which a company can prohibit the work of former employees, and whether those employees solicit business from former clients, is a clause that must be individualized based on the type of business.
Your company will have its own special needs in a non-compete agreement. An experienced attorney will be sure to include all necessary content.
Noncompete Templates May Not Actually Save You Money
Using a free or low-cost template may be tempting as a cost-saving measure. However, in the long run, the use of a template may cost a company substantial money and time and harm the business.
Hiring an attorney as the first step means that the non-compete will be created correctly from the outset. If the agreement later needs to be changed or updated, the company can re-engage the attorney to address those needs. There will be an attorney-client relationship already in place. This relationship will also prove valuable for companies needing legal advice dealing with other issues, such as what to do if an employee will not sign a non-compete.
If a contract is invalid it may be challenged in court, which can lead to expensive court costs and attorney fees. If your non-compete is deemed unenforceable, a former employee may hurt your interests by poaching your clients or taking the expertise they gained from your training to a competitor. And if you try to enforce an agreement that is later declared invalid, your employee may even be able to get damages from you by claiming you wrongfully interfered with their employment prospects.
For something as crucial as a non-compete, a smart company will engage experienced attorneys.
Non-Compete Templates May be Especially Risky for Small Businesses
Even if you are a small company, consider consulting a lawyer. A lawyer can assess the need for a non-compete and explain how it will protect your business. The use of a template for a small business carries the same risks as for a large company. If you are a sole proprietor, an attorney is best suited to help you analyze the need for a non-compete if you choose to hire employees.
Sample Texas Noncompete Agreement
This Noncompete Agreement (the “Agreement”) is made and entered into as of [date], by and between [Company Name], a Texas corporation (the “Company”), and [Employee Name] (“Employee”).
WHEREAS, Employee has been or will be employed by the Company in a key position that will allow Employee access to and the opportunity to develop and maintain relationships with the Company’s customers, clients, and vendors; and
WHEREAS, the Company is willing to provide Employee with access to confidential and proprietary information, including but not limited to trade secrets, customer lists, pricing information, financial data, and marketing plans, to assist Employee in carrying out his or her job responsibilities;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows:
Noncompete Covenant. Employee agrees that, during the term of employment and for a period of [insert number of years] years after the termination of employment, whether voluntary or involuntary, with the Company for any reason (the “Restricted Period”), Employee will not, without the prior written consent of the Company, directly or indirectly, own, manage, operate, consult with, be employed by, or participate in the ownership, management, operation, or control of any business that is in competition with the Company in the [insert geographic region] area.
Nonsolicitation Covenant. During the Restricted Period, Employee agrees that he or she will not, directly or indirectly, solicit or attempt to solicit, for himself or herself or for any other person or entity, the business or patronage of any person or entity who was a customer, client, or vendor of the Company during Employee’s employment with the Company, or about whom Employee obtained confidential or proprietary information during his or her employment with the Company.
Confidentiality Covenant. Employee acknowledges that the Company will disclose to Employee certain confidential and proprietary information. Employee agrees that, during the term of employment and thereafter, he or she will not disclose or use, directly or indirectly, any confidential or proprietary information of the Company, except as required by his or her job duties or with the prior written consent of the Company.
Reasonableness of Covenants. Employee acknowledges and agrees that the covenants contained in this Agreement are reasonable in scope, geographic area, and duration, and are necessary to protect the Company’s legitimate business interests. Employee further acknowledges that he or she has had the opportunity to review this Agreement with an attorney of his or her choosing and that he or she fully understands its terms and provisions.
Remedies. Employee agrees that any breach of this Agreement will cause irreparable harm to the Company for which monetary damages will not be an adequate remedy, and that the Company shall be entitled to injunctive relief to enforce the provisions of this Agreement, in addition to any other remedies available at law or in equity.
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas.
Entire Agreement. This Agreement contains the entire understanding between the parties and supersedes any and all prior understandings or agreements, whether written or oral, relating to the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
[Employee Name Printed]_______________________________
DISCLAIMER: The non-compete agreement provided here is intended to serve as a general example and is not intended to provide legal advice. It is important to note that laws and regulations vary by jurisdiction and change over time, and this sample agreement may not be suitable for your specific circumstances. Therefore, it is recommended that you consult with a licensed attorney in your jurisdiction to ensure that any noncompete agreement you use complies with applicable laws and regulations, and properly addresses your specific needs and concerns.
Furthermore, this noncompete agreement is being provided as a free download for your convenience. The use of this agreement is solely at your own risk. The owner of this website and the creator of this noncompete agreement template are not responsible for any damages or legal issues that may arise from the use of this agreement. By downloading and using this noncompete agreement, you acknowledge that you have read and understand this disclaimer and agree to be bound by its terms.
How Can a Qualified Texas Non Compete Attorney Help?
The attorneys at Wood Edwards LLP in Dallas, Texas, have represented both employees bound by non-competes and the companies trying to enforce the non-competes. Whether you are at the initial stages of considering the need for a non-compete, a business ready to implement a non-compete, or a company whose employee has violated a non-compete, Wood Edwards can help you.
We are strong litigators and excellent arbitrators who have decades of experience regarding non-compete agreements in Texas. Wood Edwards offers efficiency, flexibility, and extraordinary personal service. Our attorneys are ready to take the action necessary to protect the best interests of your business. Contact us now.
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