Non-compete clauses sometimes put unreasonable restrictions on an employee’s ability to find work after leaving a job. These restrictions can slow the career growth of the employee. Further, in extreme cases, overly restrictive non-competes can stop workers from finding a job in their chosen field. For this reason, non-compete agreements are falling out of legal favor throughout the United States.
Texas law has historically taken a negative view of any contracts that restrict trade. Non-competes do just that. As a result, Texas limits the scope of what non-competes can restrict.
Even the federal government is catching on. In January 2023, the FTC proposed a rule that would ban non-compete agreements from all employment contracts. Their main reasoning is that non-competes significantly suppress wages. They also deny businesses the employees they need to grow and succeed.
Unfortunately, the federal rulemaking process is slow, and it is unknown if the FTC rule will take effect. Many workers need relief from overly restrictive non-competes now.
What Is a Non-Compete?
A non-compete is generally a clause in a contract that restricts an employee’s ability to work within a given industry after they leave a company. Typical non-compete clauses prohibit workers from competing in an industry throughout a geographical region for a set period.
The purpose of these restrictions is to prevent ex-employees from using sensitive company information to give competitors an advantage. For example, imagine a cook has access to a secret recipe that drives the majority of business in a restaurant. In theory, a non-compete allows the restaurant to prevent the cook from opening a restaurant across the street. The cook can no longer use that recipe to take customers from their former employer.
Without the non-compete, the restaurant would likely never give the recipe to the cook. This would force them to operate less efficiently.
In practice, non-compete clauses are rarely this cut and dry.
Can You Get Out of a Non-compete in Texas?
Whether you can get out of a non-compete in Texas depends on the specific situation. The Texas Free Enterprise and Antitrust Act of 1983 sets the rules regarding non-competes. Getting out of a non-compete requires an employee to show the non-compete is invalid under the law. An employer cannot enforce an invalid non-compete.
What Makes a Non-compete Valid in Texas?
Texas law puts strict requirements on non-compete clauses. A non-compete clause must be reasonable in scope, geographic area, and duration. It must also be part of a separate enforceable agreement accompanied by adequate consideration.
Non-competes must be limited in duration. For most employees, a clause that restricts competition for over two years will not be enforceable. Restrictions on executives and employees with access to the most critical company secrets might be valid for up to five years. Anything beyond five years will almost certainly be unenforceable.
The geographic area covered by non-competes must also be limited. The courts determine the reasonableness of geographic scope in the context of a company’s legitimate business needs. For example, if a business operates within a specific county, a non-compete that restricts competition within the entire state is likely unenforceable. Further, if an agreement attempts to limit a worker’s ability to find employment throughout the country, it is incredibly likely to be unenforceable.
The scope of prohibited activities must also be reasonable. This limitation means the banned activities can not go beyond what would harm the employer’s business interests. In the example of a cook, a non-compete that prevented them from working as a cook throughout the entire restaurant industry would be unenforceable. A restaurant would need to define its competitors very specifically for a non-compete to be valid. It would also likely be invalid to attempt to prevent a cook from working as a server at a competitor.
Part of a Separate Enforceable Agreement and Consideration
A non-compete cannot stand on its own. This rule is why non-competes are usually a clause in an employment contract. Consideration is just another word for payment. For new employees, a salary usually covers this requirement. For current employees, a raise or promotion is often adequate.
How Much Does It Cost to Fight a Non-compete in Texas?
Unfortunately, it is hard to estimate the cost of fighting a non-compete in Texas without knowing the case’s specifics. Litigation can be expensive, but a company often won’t even attempt to enforce a highly questionable non-compete. However, ignoring a non-compete can be risky.
If you believe a non-compete agreement is unreasonably restricting you, the Curley Law Firm can help. Our firm represents businesses and individuals in a broad range of transactional and litigation matters. We pride ourselves on our client-focused, results-oriented approach. Contact the Curley Law Firm today, and we can help you determine how much fighting your non-compete will cost.