Are you wondering if you can stop your former employees from taking your clients when they leave? In Texas, non-compete agreements can help protect your business interests – but only if they follow specific legal requirements.
What Are Non-Compete Agreements?
Non-compete agreements are contracts between employers and employees. They limit where and how former employees can work after leaving their job. In Texas, these agreements must meet certain standards to be valid. Unlike some states that heavily restrict or ban non-compete agreements, Texas generally allows them when properly structured.
Texas Law on Non-Compete Agreements
The Texas Business and Commerce Code Section 15.50 sets clear rules for non-compete agreements. For an agreement to be valid, it must provide something valuable in return, such as access to trade secrets, special training, or confidential information.
The agreement must also be reasonable in terms of time period, geographic area, and scope of restricted activities. For example, a one-year restriction within a 50-mile radius might be reasonable. But a nationwide ban for five years would likely be too broad.
Texas courts often look at industry standards when deciding what’s reasonable. They consider factors like the nature of the business, the role of the employee, and the local market conditions. A small local business might only justify a smaller restricted area, while a company with regional operations might warrant broader geographic limits.
Common Mistakes to Avoid
When creating non-compete agreements, many businesses make mistakes that can invalidate their agreements. Using unclear language or making restrictions too broad are common issues. Some businesses try to restrict more than necessary or fail to offer anything of value in exchange for the agreement.
Another frequent error is not updating agreements as business conditions change. What worked five years ago might not match current market realities. Regular reviews and updates help ensure your agreements remain effective and enforceable.
When Courts Won’t Enforce Non-Compete Agreements
Texas courts take a balanced approach to enforcement. They won’t enforce agreements that prevent someone from earning a living or hurt public health, safety, or welfare. Agreements that go beyond protecting legitimate business interests or those that last too long or cover too large an area will also face scrutiny.
The courts also look at how the agreement affects the public interest. For instance, they might be less likely to enforce restrictions that would leave a small town without important services or create a monopoly in certain areas.
Industry-Specific Considerations
Different industries need different types of protection in their non-compete agreements. Sales teams often need protection for customer relationships and sales territories. Tech workers’ agreements might focus on trade secrets and intellectual property. Healthcare non-competes must balance protecting business interests with ensuring patient access to care.
The financial services industry often requires special attention due to client relationships and confidential information. Manufacturing businesses might focus more on protecting production processes and supplier relationships.
Tips for Creating Valid Agreements
To create an effective non-compete agreement, keep restrictions minimal and specific to your business needs. The agreement should offer clear value to employees and use simple, clear language. Consider these elements:
- Make time and geography limits reasonable
- Define restricted activities clearly
- Match restrictions to actual business needs
It’s worth noting that timing matters too. The best practice is to have new employees sign non-compete agreements when they start work. Adding them later requires additional consideration to be valid.
Recent Changes in Texas Law
Texas courts continue to refine how they view these agreements. They now look more closely at whether restrictions truly protect business interests and how agreements affect local competition. Courts also examine if agreements unfairly limit employee opportunities.
Recent cases have emphasized the importance of tailoring agreements to specific roles and situations. Courts have shown they’re willing to modify overly broad agreements rather than throw them out entirely, but it’s better to start with reasonable terms.
Get Professional Legal Help
Creating effective non-compete agreements in Texas requires careful planning. The Law Office of Kyle J. Moore, PLLC can help protect your business interests. We offer legal advice on non-compete agreements in Texas, along with other services including real estate law, contract review and drafting, personal injury, and veterans law.
Contact us today to learn how we can help protect your business relationships and trade secrets with properly drafted non-compete agreements.