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How far reaching can a noncompete agreement be?

On Behalf of | Sep 22, 2021 | Noncompete Agreements

As a business owner, your worst nightmare is likely for a former partner or employee to use the information, skills and clients they gained while working for you to set up a business that directly competes with yours. Such a thing could seriously damage your business, and could be difficult to recover from.

To avoid this, you might want to make all of your current and future employees sign a noncompete agreement. Are these agreements enforceable in Texas? And if so, how far reaching can they be before they become unenforceable?

The Texas Business and Commerce Code

The Texas legislature has specifically addressed the topic of noncompete agreements in the Texas Business and Commerce Code. The Code states that these agreements are enforceable in Texas courts, as long as they comply with certain limitations.

A noncompete agreement is enforceable as long as the work area that it is restricting, the geographical area that it applies to, and its time limit are all reasonable and not more extensive than necessary to achieve their purpose. This standard can be somewhat subjective, but the courts evaluate each case on an individual business to determine if enforcing the agreement is fair to both parties.

The reasonableness requirement

When evaluating the reasonableness of an agreement, the court will first look to your reason for implementing the agreement in the first place. They will take into account the industry your business is in, the general market conditions, and how competition would affect your goodwill or other business interests.

Then they will balance these interests against the rights of your former employee to find gainful employment. As long as you don’t restrict their activities to a larger geographic area or time limit than you need to prepare your business for the incoming competition, it’s likely that a court will find your agreement reasonable, and enforce it as written.

It’s a solid business practice to have all new hires in your business sign a reasonable noncompete agreement. That way you can protect your business from unfair competition that could set you back considerably.