Houston business owners use non-compete agreements for many reasons. A non-compete agreement can restrict employees from leaving your business and using their confidential information and insider knowledge to compete against you by working for competitors or opening their own business in the same field.
If you are a Houston business owner and want to start using non-compete agreements in your business, it is important to know the legal scope of these agreements in Texas. Certain provisions or language could make all or part of your non-compete agreement illegal and therefore unenforceable.
Texas law allows non-compete agreements only if the agreement is part of an agreement that is otherwise enforceable.
Reasonable restrictions in non-compete agreements
Non-compete agreements usually forbid employees from working in a certain area for a specific time and limit their activities. However, the law states that these limitations in non-compete agreements must be reasonable.
There are no strict rules for how to structure your non-compete agreements to be reasonable with these types of restrictions. Generally, restrictions in a non-compete agreement are more likely to be seen as reasonable if more specialized knowledge is required for the specific position.
There is no specific time limit for how long a non-compete agreement can last but in some cases non-compete agreements lasting more than two years have been found to be unreasonable.
Determining whether these restrictions are legal is usually complex and heavily depends on the facts of the situation. A court will scrutinize the interests you are trying to protect to make sure your non-compete agreement is not overly broad.
Having a standard non-compete agreement that applies to every employee is not always a good idea. Terms that are viewed as reasonable for one employee may not be reasonable for another employee.
Overall, your non-compete agreements must reasonably relate to interests that a court would deem necessary for protection.
Consideration in non-compete agreements
Additionally, non-compete agreements in Texas are only enforceable if the employee was given satisfactory consideration for signing the agreement. Typically, an offer of employment is viewed as sufficient consideration when the non-compete is being drafted for a new employee.
A non-compete agreement can also be drafted and executed for existing employees. Proper consideration in these cases usually takes the form of a pay raise, promotion or other benefit such as stock options.
Finally, certain professions, such as attorneys and physicians, are exempt from non-compete agreements in Texas.
Non-compete agreements can be enforceable in Texas if you can show that the terms are reasonable and they protect your legitimate business interests.
The law regarding non-compete agreements often changes and non-compete agreements have been the subject of legal discussion in recent years. Before you draft or execute non-compete agreements in your business it is vital to make sure you understand the current state of non-compete law and its impact on your non-compete agreements.