What employers should know about noncompete agreements in Texas

Noncompete agreements offer a number of benefits to employers in Texas, as long as they are enforceable.

According to The Wall Street Journal, since 2002, there has been a 61 percent increase in the number of court rulings concerning noncompete agreements. While some say the litigation is discouraging entrepreneurship, the truth is that these contracts are vital for many companies in Texas and across the country.

Why should my business use noncompete agreements?

Employers stand to largely benefit from having employees sign noncompete documents. For example, these contracts are intended for the short-term protection trade secrets and other information that could be viewed as confidential. Additionally, highly skilled employees will be prevented from taking their talents to a competitor.

It is also important to consider that when certain employees leave, they may take customers with them. Having a noncompete contract in place would mitigate the risk of those customers from going to a competing company.

Lastly, these documents can aid in employee retention. Through keeping a worker on board longer as opposed to training new people, companies can save money.

What elements should be included?

Experts agree that these contracts should contain the following:

  • Clearly defining which businesses qualify as competitors
  • Putting a timeline on how long the employee is restricted from going to a competitor
  • Stating the geographic area to which the contract applies

A contract should also cover whether or not the contract could be enforced if the employee is fired.

What makes the agreement enforceable?

While the above points should be included, they should also be reasonable. Under Texas law, a noncompete agreement is only enforceable if its terms fall within reason. For example, restricting an employee from working for a competitor for decades likely would not be reasonable, nor would setting the geographic area to a space larger than the area that the company serves.

It is also important to note that the law states that these agreements must be ancillary to another employment contract that is enforceable. In other words, Texas courts will not uphold a standalone non-compete agreement.

What are the consequences of breaking the agreement?

As illustrated by the numbers provided by The Wall Street Journal, an increasing number of companies have begun holding employees responsible for breaking these agreements. Business owners are entitled to sue the worker for damages, especially if the employee has given away valuable intellectual property, like trade secrets.

It is also possible for the business to sue the worker's new company based on tortious interference. If the new employer believes it could be liable, it will likely terminate the employee in question.

Drafting enforceable agreements requires the help of a skilled professional. Anyone who has questions about this issue should consult with a business law attorney in Texas.