Updated: January 08, 2020 / Written by: Robert Wood, Esq.
As an attorney who frequently handles contract dispute matters involving Texas non compete agreements, one of the questions that I am asked more than any other (by both employers and employees) is: “Is my Texas non compete agreement enforceable?”
[ FAQ: Click here for answers to questions about hiring me to help with your Texas non-compete issue. ]
Are non-compete agreements enforceable in Texas?
To protect company goodwill and confidential information, a Texas employer can utilize a non compete agreement. A non compete agreement is enforceable in Texas if it is supported by valid consideration, and is reasonable in time, geographic scope, and activities to be restrained. Generally, Texas law disfavors contracts and arrangements that restrict employee mobility. The Texas Free Enterprise and Antitrust Act of 1983 states that “Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.”
However, the Texas legislature has carved out an exception to this, by allowing non-compete agreements to be enforceable in certain circumstances.
Find out if your Texas non compete agreement is enforceable.
Complete the short form below or call 469-754-2812 to get answers from attorney Robert Wood
Continue reading for a more in-depth explanation of the enforceability of non compete agreements in Texas…
To be enforceable in Texas, non competes must be reasonable in scope
Texas courts have recognized that overly broad restrictions on employee mobility are harmful to the free market. Accordingly, not all non compete agreements (ie. restrictive covenants) are enforceable in Texas. To be valid under Texas law, a covenant not to compete must be “ancillary to an otherwise enforceable agreement.”
Then, the restrictions must be reasonable in scope.
The “otherwise enforceable agreement” requirement simply means that both parties to the contract must have made binding promises. In the 1990s and 2000s, whether an “otherwise enforceable agreement” existed was the subject of much litigation. This was especially true in the context of an at-will employee.
An at-will employee in Texas would typically contend that any consideration promised by the employer—such as specialized training—was “illusory,” because the employee could theoretically be fired before receiving it. For years, this was an argument that Texas courts accepted.
That all changed, though, in 2006, when the Texas Supreme Court issued its Sheshunoff opinion. There, the court held that a promise to an at-will employee could be part of a valid agreement once the consideration was actually provided. This was an important holding which precluded a substantial amount of potential litigation related to when the consideration for a non compete was given.
Several other Texas Supreme Court cases enhanced the enforceability of non compete agreements, culminating in the Marsh USA case in 2011. There, the court held that the consideration given by the employer, in exchange for the employee’s promise not to compete, did not have to “give rise” to the need to restrain competition. Rather, the consideration had to be “reasonably related” to the need to restrain competition. Consideration such as confidential information, trade secrets, and the need to protect goodwill could, in the right case, meet this standard.
In reaching this result, the Texas Supreme Court noted that the “Texas Constitution protects the freedom to contract.” But the court also reaffirmed the legislative restrictions imposed upon non competes. The court noted that “unreasonable limitations” could “hinder legitimate competition.”
In his concurring opinion in the Marsh USA case, Justice Willett cautioned judges to “divine when competition becomes unfair competition and when a restraint becomes an unreasonable or unnecessarily restrictive restraint.” Texas law, he said, “does not allow protectionism,” and that non competes cannot protect against “the bruises of ordinary competition.”
So, the answer to the question of whether a particular Texas non compete agreement is enforceable is, it depends. What an employee bound by a non compete really wants to know is, What will happen to me if I violate a non compete in Texas?
What will happen to me if I violate a non compete agreement in Texas?
There is no easy answer to that question. The contract itself must be reviewed, as well as the individual circumstances.
Also, a non compete agreement, even if supported by valid consideration, must be reasonable in scope. Some non competes are unreasonable, because the term of the restriction, the geographic scope, or the scope of the activity to be restrained is too broad.
Even if a non compete is valid under Texas law, that does not mean that an employer suing to enforce the agreement will automatically prevail. An employee bound by a non compete may have various defenses. The employer’s unclean hands, for example, may be a defense to injunctive relief. Or, an employer seeking a temporary injunction may not have suffered irreparable harm, or it may have an adequate legal remedy. The facts of each case must be carefully analyzed.
Get answers from an experienced Texas noncompete attorney
We have assisted many employees who are bound by non competes. We are familiar with the law governing these agreements. We also have substantial practical experience, gained from both inside and outside of the courtroom. Also, because we also represent companies, we know how employers tend to view violations of these agreements.
If you are party to a noncompete agreement, or have a legal matter involving a non compete in Texas, contact us today.
FAQ: Hiring a Texas non-compete lawyer (me) to represent you
Q. I have a noncompete agreement that I need to have reviewed. What is your process?
A. I will review the agreement and then we will set up a time to talk.
Q. Will the conversation occur via telephone or in person?
A. I conduct 95% of my consultations via phone.
Q. What will we talk about?
A. I will ask questions so that I can learn the details of your situation. I will discuss the law with you and the facts of your situation. I will work with you to make the best decision for you, by assessing possible risks and rewards.
Q. How long will we talk?
A. As long as necessary. Typically, 30 minutes or so.
Q. Is that long enough?
A. Yes. I don’t waste time, and since I have done over 1,000 noncompete consultations, I know the questions to ask, and I am good at quickly analyzing a situation.
Q. What if I think of another question after our conversation? Is there an additional charge to talk with you again?
A. Typically, there would not be another charge. Of course, if I end up spending substantial time, I would have to go on the clock, but an additional few minutes of questions will not be a problem.
Q. What if I need for you to negotiate with my employer or send a letter for me? Is there an additional charge for that?
A. Typically, yes. But it may not be necessary for me to engage with your employer. Let’s talk and determine whether that is necessary. If it is necessary, again, I don’t waste time—I am able to get things done efficiently.
Q. Do you mainly represent employees, or employers?
A. Both. I have advised many employees and have represented many employees in litigation.
Q. What is your usual turnaround on reviewing an agreement and having a consultation?
A. I can act quickly, usually within a day or two. And I am often available at night and on Saturday morning.
Q. My cousin Steve says that Texas is a “right to work state,” and that noncompete agreements are not enforceable here. Are you sure I need to talk with you?
A. You do need to talk with me. “Right to work” has nothing to do with noncompete agreements. It simply means that you can’t be forced to join a labor union.
Q. When I signed my noncompete, I wasn’t given a choice on whether to do so. Plus, I was not paid any money, nor was I given a promotion. Do we really need to talk?
A. Yes, we do.
Q. Since I signed a noncompete, is it really worthwhile to talk with you? Should I just comply with it?
A. This is a strange area of the law. It’s often not as simple as “You signed it, you must comply.” The individual facts of each case have to be analyzed. Plus, given my 25+ years of experience, I have a good feel for which situations will end up in litigation and which ones will not.
Q. What is your main objective for the individuals with whom you work?
A. To keep them out of trouble. My goal is that we will talk once and you will get some good advice, so that you don’t have to call me again. But I also want to keep you from just “laying down”—I want to come up with a game plan that allows you to get out of a bad situation (if you are in one) and get on with your career.
Want to learn more? Browse Texas non compete and contract dispute articles, written by Attorney Robert Wood: