PHAM & CLOVES, PLLC

Non-compete agreements are commonly used by employers seeking to limit exposure to a degradation of market share due to ex-employees attempting to do business with the employer’s customers after their employment period ends. Non-competes are legal in Texas, but have to meet certain criteria to be enforceable as written.

A non-compete agreement or a covenant not to compete is considered by Texas courts as a restraint on trade. As such, the agreement must meet certain criteria to be enforceable. Non-compete agreements are popular forms of limiting exposure to unfair competition that may result from an employee of a company going to work for a competitor and taking with her clients or customers of the company.

Non-compete agreements must be ancillary to an otherwise enforceable agreement. That is, usually, a non-compete agreement is used in addition to an employment agreement. However, at-will employment can suffice as an otherwise enforceable agreement as long as the consideration for the promise not to compete is supported by consideration (something of value) and is not merely illusory (all form, but no substance). To be enforceable, a non-compete agreement must also be designed to enforce the employee’s non-illusory promise. For example, the purpose of the non-compete agreement must be to give the employee something of value in exchange for the employee giving something of value back, usually in the form of a promise not to compete or not to disclose certain proprietary information, or both.

Non-compete agreements can also be an adjunct to a severance package. Oftentimes, depending on the nature of the employment, when a company reduces its workforce it will offer the exiting employees a benefits package that can include a lump sum payment along with a non-compete agreement. The non-compete agreement is supported by the promise of the exiting employee in exchange for the lump sum payment, which is usually tied to a percentage of employee’s salary at the time of reduction. These severance agreements are negotiable. Additionally, the enforceability of these types of agreements is subject to the same requirements as a non-compete agreement in any other situation. Most severance agreements contain waiver language designed to limit the employer’s exposure to litigation or discrimination claims by the exiting employee.

Non-compete agreements, if found unenforceable by a court, are not merely voided, but are reformed to conform to law and/or public policy. If you are asked to sign a non-compete agreement, it would be wise to have the document reviewed by an attorney who understands how these agreements work. As with any legally binding agreement, if you know your rights and obligations relative to the agreement, you are far less subject to unpleasant surprises down the road. To schedule a consultation to discuss a non-compete agreement and how it will affect you, contact a Houston Veritas Legal Group non-compete agreement attorney at 832-484-9015. The peace of mind you get from understanding what you’re signing will far eclipse the cost of the consultation.