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Non-compete Agreements

Employment contracts containing covenants not to compete have been the subject of many lawsuits in Texas. Texas law scrutinizes these covenants and they must be carefully drafted for Texas courts to enforce them. Often, employees can file a declaratory judgment action to modify or void covenants not to compete on the ground they are overbroad as to activity prohibited, length of time or their geographical limitations.

Additionally, employees can claim their litigation fees in a declaratory judgment action. Consequently, careful draftsmanship and timing are important considerations in preparing or evaluating disputes regarding covenants not to compete.

Considerations

  • Enforceability can depend upon whether or not the employee was provided with trade secrets or confidential information unique to the employer.
  • Is a covenant not to compete really necessary to protect your business-i.e., is an employee a data entry clerk or an software engineer with access to and knowledge of all proprietary information and processes.
  • Does the covenant apply to the employer's sales area or does it cover 12 states in which the employer might do business?
  • Is the covenant limited in time or is it in effect for 5 years?
  • Does the covenant apply only to the employer's actual customers, where identifiable?
  • How many customers, past and present, does the employer have?

Given these factors and the continuing litigation in the courts of Texas regarding covenants not to compete, it may be time to update existing covenants not to compete, regardless of whether you're an employer or employee.