For most of the late 1990s and early 2000s, it was considered to be nearly impossible to have an enforceable non-compete in Texas. After clarification by the Texas Supreme Court in 2006, non-competition agreements in Texas have found new life.
Non-competition agreements typically prevent an employee from competing with an employer after their employment ends. Frequently, employers use them to protect their customer lists and contact information, pricing structures, methodologies and business strategies, or other “proprietary” information like methods to cultivate new and existing clients or marketing strategies.
Prior to the 2006 decision, most of the Texas Courts of Appeal believed that an employer had to provide trade secrets or confidential information at the same time that an employee signed a covenant not to compete. Even then, many courts declined to enforce the non-compete if the disclosed information was not “secret” enough.
Now, thanks to the Texas Supreme Court’s decision in Sheshunoff, covenants not to compete become enforceable at any time after signing when the employer actually discloses confidential information to its employee. This decision not only allows enforcement of existing covenants not to compete, it can breathe new life into non-competes previously written off by employers and their counsel as being unenforceable.
Still, in Texas, a covenant not to compete must have reasonable limitations on duration, geographical area and scope of activity. Ultimately, the enforceability of a Non-Competition Agreement depends on the balance between the employee’s ability to earn a living and the employer’s protection of its economic self interest.
Practical Points. Employees who have confidential and proprietary information, training methods or proprietary business processes to protect should avoid using a “form” agreement that is broader and longer than necessary. A Court will invariably “reform” such an arrangement. Additionally, the existence of a valid covenant not to compete might be a useful bargaining point when attempting to negotiate a mutual release of claims with a departing, disgruntled employee.
For more information, please see Alex Sheshunoff Mgmt. Services, L.P. v. Kenneth Johnson and Strunk & Associates, L.P., 209 S.W.3d 644 (Tex. 2006).
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