Yes, Non-Competes ARE Enforceable in Texas
Updated: May 4, 2019
We've had several clients come contact us lately saying "one of my employees quit and went to work for a competitor. I had them sign a non-compete, but I know those aren't enforceable in Texas, so what else can I do?" In my head, I hear tires screeching, or the DJ bringing the mix to a sudden halt. What? Unenforceable?
It is true that "[e]very contract, combination, or conspiracy in restraint of trade or commerce is unlawful." Tex. Bus. & Com. Code §15.05. But why would so many employers have employees sign non-competes if that were the case? Why would so many major national and international companies bring their headquarters to Texas if we didn't allow them a chance to protect their investment in human capital? Because that restraint that is supposedly unlawful, is not:
"Notwithstanding Section 15.05 of this code...a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee." Tex. Bus. & Com. Code §15.50.
In short - provided that your non-compete meets these criteria (assuming the employee is not a physician - which would require some additional elements), your non-compete is probably very enforceable. The primary concerns are that the agreement:
Is part of or ancillary to an enforceable agreement (ie: an employment agreement, stock option agreement, independent contractor agreement, etc.);
Is reasonably limited in:
(b) geographical area; and
(c) scope of activity; and
Contains only those restraints reasonably calculated to protect your business.
What's more, even if your agreement is not in strict compliance with these requirements, the judge has authority to rewrite your non-compete in litigation to make it compliant. (Do not assume that the judge will do this; it's simply important to note that the judge can.) So if you have a non-compete agreement signed by an ex-employee who is now working for a competitor (or worse - taking your clients and/or your proprietary information), you should immediately seek legal advice to see how you can protect your business.