We are frequently asked questions about non-compete agreements. First, what are they? Second, are they enforceable? Third, what are the requirements? This article is a short introduction to non-compete agreements.
What Is A Non-Compete Agreement?
A non-compete agreement is an agreement between an employer and employee that if the employee leaves the employer, the employee cannot go to work for a competitor, or start a business that competes with the employer. It is intended to protect the employer’s business, not punish the employee. They are not permissible between business and independent contractors. Using these agreements with contractors risks having the contractor classified as an employee and exposes the business to a misclassification claim.
Are They Enforceable?
These agreements are generally enforceable. Even if some aspect of the agreement is not reasonable (and may not be enforceable), the agreement often allows a court or arbitrator to modify the agreement to make it enforceable.
What Are The Requirements?
In Texas, non-compete agreements are governed by The Covenant Not To Compete Act. They must be part of another enforceable agreement (they cannot be their own stand-alone agreement), so they are typically part of a confidentiality, non-disclosure, or other agreement. They must contain a reasonable geographic restriction, a reasonable time limit, and a reasonable scope of activity. These restrictions must not impose a greater restraint than is necessary to protect the business. They must also be supported by consideration – meaning the employee must have received separate value for the agreement. Employment or continued employment is not adequate consideration.
Employees under a non-compete cannot perform work or services covered by the agreement, in the geographically restricted area, for the period of time that the non-compete agreement is in place. Employees should disclose to new employers any agreements with prior employers. Employers should also inquire with prospective employees whether they are under a non-compete or any other agreements with prior employers.
Non-Compete Agreements Have Gotten a Bad Reputation
Non-competition agreements have gotten a bad reputation over time. At one time, the rules were constantly changing and hard to meet. Sometimes these agreements have been abused. Take a look at the video below for just a few reasons why non-compete agreements can be a win-win situation when used appropriately.
Interesting in Implementing Non-Compete Agreements in Your Business?
Our attorneys can help you implement non-compete agreements with appropriate employees in a manner that is good for your bottom line. Schedule your free telephone consultation today and let’s explore the options.