Friday, September 4, 2015

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 (maura@lpvlaw.com)