The news is full of stories about new businesses forming in Texas. We hear of companies relocating from others places to the state as well. There are various reasons for them coming here. Some people say Texas is “business friendly” with low corporate taxes, a vast infrastructure and highly skilled workers.
Well, when the employees arrive at their new jobs, they may face a surprise. Some employers will require their new hires to sign covenants not to compete or non-competition agreements. The contracts prohibit departing employees from working in a competing business for a certain length of time within a certain geographical area.
Purpose of a Covenant Not to Compete
Texas has a culture of promoting business and competition. Generally, it does not restrain business mobility; however, the covenant not to compete is an exception. Still, in order for courts to enforce a covenant not to compete it has to meet strict requirements.
A Valid Covenant Not to Compete
Section 15.50(a) of the Texas Business & Commerce Code contends “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 promise.” (Covenants not to compete in the medical field are covered under different standards).
Reasons for Having a Covenant Not to Compete
Some employers want their employees to sign non-competition agreements for the following reasons:
- They wish to guard their clients’ names and information.
- They want to safeguard proprietary training methods.
- They desire to protect confidential trade secrets.
Although Texas is a great state for the free movement of business and competition, a covenant not to compete protects employers from their employees leaving and using confidential information to compete against them.
This is a very brief introduction to covenants not to compete. If you need assistance with drafting a covenant not to compete or negotiating the terms of one, please contact me for further information.
