Non-Competition Agreements

In theTexas Business Today, Winter 2011 edition published by the Texas Workforce Commission, an article by Marissa Marquez, Legal Counsel for Chairman Tom Pauken, on page 10 discusses non-competition agreements.  Organizations use such non-competition agreements to protect their proprietorship of information and relationships with customers and employees.  When employees or contractors leave an organization, how can the organization keep the departing individuals from immediately selling to the organization’s customers or contacting and hiring away its employees?

While operating a consulting company, I insisted that my employees and contractors sign non-competition and confidentiality agreements. Typically such agreements prohibit the departing individual from marketing to my customers or soliciting to hire my employees for a specific time period.  The question often posed is: are non-competition agreements enforceable?  As the article states, the answer is - it depends.

“In 1989, the Texas Legislature enacted section 15.50(a) of the Texas Business & Commerce Code which states the requirements that make a non-competition agreement enforceable.”  While the issue is most complex and lawyers should be consulted, the following requirements must be met:

1.   Ancillary to An Otherwise Enforceable Agreement: The employee’s promise not to compete must be a part of a related or underlying contract imposing obligations on both the employee and employer.

2.   Reasonable Time Limitations: The code requires the non-competition agreement to contain reasonable time limitation as to how long the employee is restrained from competing.  In some cases courts have held that two – five years is reasonable.  However, the time limitation may be dependent on many factors including the position previously held by an employee and the factors involved in the departure.

3.   Reasonable Geographical Limitations: Here again every case or situation may be different.  The test must be reasonable.  If an organization does business in only one city, an individual could be restricted from doing business in another city.

My advice to job seekers is that you review carefully an employment agreement before signing.  I understand that getting employed is paramount and that you may have hold your nose as you sign and get to work!  

Please share with other readers of this blog your experience with non-competition agreements.

Thanks!  Glyn