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Many employers require their employees, especially employees involved in sales or marketing, to sign non-compete agreements as a condition of their employment. Although the Texas Supreme Court has consistently made such agreements more enforceable over the last 11 years, specific requirements are still required. The failure to abide by these requirements could render a non-compete agreement unenforceable.
Q. What are the basic requirements of an enforceable non-compete agreement?
A. There are technically two requirements: 1) it must be ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; and 2) it must contain 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.
Q. As a business owner, can I give new employees a one-time lump sum amount of money in exchange for them agreeing to a non-compete?
A. No. The agreement must give rise to the employer’s interest in restraining the employee from competing. Specifically, the employer must give something that is “reasonably related to an interest worthy of protection, such as trade secrets, confidential information or goodwill.” Generally, providing employees access to such information should be sufficient; however, simply providing cash would not be.
Q. I was a sales employee for my prior employer. In my job, I worked with several customers selling [a product/service] on behalf of my employer. The non-compete agreement prevents me from communicating or selling anything at all to these customers I worked with for one year. Is that enforceable?
A. Although every situation is different and the enforceability of a non-compete agreement may depend on specific facts and the judge making the decision, the situation you describe is probably not fully enforceable. Although a one-year time frame is likely to be reasonable, the problem is that your employer is inappropriately limiting the scope of activity to be restrained. For example, you would have the right to communicate with these customers (perhaps in a social setting or as a friend). Also, you would likely have the right to sell unrelated products/services that would not cause any loss to your prior employer’s business.
Q. I worked for a large company with thousands of customers, but only had dealings with a small fraction of those customers. The company’s non-compete agreement prevents me from soliciting or working with all of its customers for one year. I quit my job and have just started working for a direct competitor. Can my prior employer still prevent me from soliciting or working with all of its customers?
A. Probably not. Generally, an “industry wide” exclusion is too broad. If you did not work with certain customers and knew nothing about them, it will be difficult for your prior employer to prevent you from working with them for your new employer. However, your prior employer can likely prevent you from targeting customers with you did work. Nevertheless, this issue is debatable, and a judge may have discretion to decide how to rule.
This article is for general information purposes and is not to be construed as specific legal advice.
Board Certified Labor and Employment Attorney Nitin Sud represents employees, executives, and small businesses in a variety of labor and employment matters, including litigation in state and federal courts.
For more information, visit www.sudemploymentlaw.com