Specific Requirements for Texas Non-Compete Agreements

For non-compete agreements to be to be binding in Texas, there are specific terms that must be included and conditions that must be satisfied.  

Section 15.50(a) of the Texas Business & Commerce Code provides:

 A non-compete must be “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made”; and

The agreement must contain “limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.”

This provision has been interpreted to require the following:

First, the contract in which the non-compete agreement is contained or is ancillary to must be valid and legal to make it enforceable.

Second, that any agreement for a non-compete requires independent compensation for that agreement.  The compensation can be monetary or specific training or access to proprietary information, but must be determinable from the contract.

And third, the restrictions on the non-compete must be reasonable in duration and scope.   It has been determined that a two year term is reasonable, but that longer usually is not.  The area covered should not exceed 100 miles in order to be reasonable and the scope of the restriction must be specific as to what the person bound can and cannot do – and must (again) be reasonably related to the scope of the employment or the business being conveyed.

All determinations under this provision are fact specific and each situation must be evaluated independently.  But a full and specific listing of the restrictions, which are reasonable in scope and agreed by the parties, will usually pass muster.

By Maura Phelan 

Purchasing a Business: What’s important and what you should know before buying a business in Texas?

Purchasing a pre-existing business can be a way to avoid the issues involved with starting a new business, but comes with its own unique issues. Several things should be taken into consideration before deciding whether to buy a business. First, why is the business being sold? Researching the history of the business can help to determine its worth and any issues that will convey with the purchase such as bankruptcy, mismanagement, lawsuits, or other bad occurrences that will affect its public image. Second, are there any permits or licenses that are required to operate the business and what rules and regulations govern its operation?  And what is the business’s history with those agencies?  Again, the history may affect your ability to keep or obtain such licenses or permits.  Third, what exactly are you buying?  Does the sale include only the business’s assets?  Or will you be purchasing its liabilities as well?  Are there leases, contracts, or other continuing agreements that you will be purchasing and bound by?  It is important to be very specific when identifying the all items being conveyed in the sale to reduce the possibility of future disputes that might lead to litigation or which may affect the value of the business being purchased.

Finally, you should also consider a non-compete covenant with the previous owner.  This can prevent them from opening a new business that could compete with the one you just bought, keep them from hiring their former employees away from you, and stop any use of their previous client list, among other things.

Remember to also take into account the cost of legal services needed to buy a business when valuing the purchase or establishing a budget.  And always consult an attorney at the beginning of the process, as your legal costs will be considerably higher if you wait to include legal counsel when you actually have a problem.

Written by Eric Rupe / Maura Phelan (maura@lpvlaw.com)

The Problem with Business or Club Credit Cards

So you have a credit card in the business or club name that offices/employees/workers use to make purchases for the business or club.  What if you see the statement and these purchases are unauthorized?  Unless you have a specific credit card policy signed by the person using the card, you cannot pursue the matter criminally.  And, chances are, if you try to recover in civil court, it will cost you legal fees and there will be nothing to recover.

Moral of this story: Do not allow anyone to have/use/hold a credit card in the name of the business or club without a signed specific authorization and limitation of use of that card for purposes directly related to the club or business – and limits on how much can be spent on a single item or per month or without authorization.  Have each person with access to the card sign the policy and keep the signed document in your file.

By Maura Phelan (maura@lpvlaw.com)

When a Long Term Employee can be bad for Your Business:

Area in which a small business or service can be vulnerable:

•             Long term, long time employees in your financial division that never take a vacation

You might believe this to be a good thing, but any scheme or plan to systematically divert funds takes care and maintenance.  An employee who is so much in control may be hiding something.

How to Address This:  Force all employees to take a two week vacation.  Not split – the full two weeks.  Most fraud schemes will fall apart if left unattended for two full weeks and your substitute can inform you of any aberrations.

CAVEAT: If you have two employees who cover each other’s position, bring in a third to fill the vacationers spot.  You might have fostered a team approach to your theft.

By Maura Phelan (maura@lpvlaw.com)

Is your business safe?

Small business owners as well as service organizations are more and more often finding themselves victims of internal theft.  And while such thefts can vary from small amounts pilfered from petty cash or items charged to the club or business that were actually for personal use, there are some simple things that can be done to detect, stop, prevent, or make it possible to recover such losses.

               

The first step to take is to make sure the person who reconciles the checkbook is not the person who writes the checks – or at least have a second person who also reconciles.  If the check writer is also the only one seeing the bank statement, the fox is in charge of the henhouse!

To Remedy: Make sure that someone else is seeing the bank statement each month.  Have the statements sent to a PO Box that your check writer has no access to rather than the business address.  Or make sure to view the bank accounts online on a regular basis to look for aberrations or transactions that are not authorized.

By Maura Phelan  (maura@lpvlaw.com)