When you hire an employee or develop a business relationship with another party, there is always the risk they will use their knowledge of your business to begin a competing business or work for a competitor once the relationship comes to an end. Fortunately, non-compete agreements and clauses can protect you and prevent this from happening.
What is a Non-Compete Agreement in Texas?
A non-compete agreement or non-compete clause in a contract prohibits a person or business entity from providing services or engaging in business – in specific markets and locations, and for a certain time period – in a manner that would compete with your business. The purpose of non-competes is to protect your company from losing employees to direct competitors who will leverage inside knowledge or contracts.
To protect a company's 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.
Do Non-Competes Hold Up In Texas?
According to Texas noncompete law, agreements may hold up. Non-compete agreements in Texas may be enforceable if the following conditions are true:
- They are part of an enforceable agreement
- They are supported by valid consideration (ie. something of value is given to the employee)
- The limitations must be reasonable in regard to time, geographical area, and activities that will be restrained
- Employer must demonstrate how non-enforcement of the agreement would harm the business and that enforcing it would not place an unfair burden on someone’s profession or trade, or ability to support themselves
- They may include an executory promise (a promise the employer plans to carry out in the future) made in relation to an at-will employment agreement as long as the employer fulfills the promise when the non-compete agreement was received (for example, a promise to provide specific training or access to proprietary information -- anything that increases interest in the business and is protected by the non compete agreement in Texas
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Most non-competes contain the following general provisions:
- Reason for the non-compete. There must be a specified, reasonable motivation for the non-compete clause or agreement.
- Effective date. The effective period and terms need to be specified in order for a non-compete to be enforceable. The time period of the restriction from working for a competitor or as a competitor needs to be reasonable for your business industry.
- Non-solicitation. While non-solicitation clauses are not always in non-competes, it is best to have one to protect your clients or employees from being poached by your competitors.
- Geographic area. A non-compete can only be enforced within a certain geographic area.
- Compensation. There needs to be some form of compensation, such as benefits of employment, for not competing.
- Penalties. There are certain penalties for breach of a non-compete agreement, including being susceptible to a lawsuit.
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