Does your noncompete actually work?

Many businesses want to prevent valuable employees from leaving for their competition. They try to do this using noncompete agreements, or covenants not to compete. But not all such agreements actually do what folks want them to do.

Worthwhile agreements are enforceable by courts. If you can’t enforce your agreement, all you have is a pretty piece of paper.

So how do you write an enforceable noncompete in Texas? Make it part of an otherwise enforceable agreement, and make its restrictions reasonable.

Enforceable?

Simplifying drastically, an enforceable contract has each party promising something of value to the other. Think about buying a book – you hand over cash (or promise to pay later, via your credit card), you get a book. Each party gave up something of value, and got something of value. This works with promises, too. Say you want to buy a house, but want some time to do inspections and get your financing in order. You and the seller can agree that, in return for some money, the seller won’t sell the house to anyone else for, say, a month. As long as the promise involves something a party would be free to do without the agreement, it’s valuable enough to be enforced.

Now let’s look at employment. At its simplest, a worker does work and gets paid for that work. The things being exchanged are “work” and “get paid”. Adding in a noncompete requirement by itself doesn’t work – it needs to be an exchange for something else. That something else could be access to confidential information, special training, stock, or stock options – but it has to be something other than just the job itself. Only then can you say the employee got something in return for a promise not to do something he’d be free to do otherwise – an enforceable agreement.

Reasonable?

You can’t force someone to work for you – that would be slavery. You also can’t completely prevent someone from making a living unless he or she works for you – that’s pretty much slavery too. So the general rule is that the restrictions in noncompetes – how long they last, where geographically they apply, what types of activities they restrict – need to be reasonable, and not more than necessary to protect the business interest the noncompete agreement serves. What’s considered “reasonable”? That’s for a jury to decide, in the resulting court case when things go bad. “Forever” isn’t reasonable, but a year or two probably is. “All over the US” is probably too broad – unless you’re dealing with a very highly specialized employee who’s one of the very few in the country with those skills. For a local salesperson, a radius of fifty or a hundred miles is probably ok. “Any position requiring software development” – most likely also too broad. Again, people need to be able to work.

Different states view noncompetes differently; this article is specific to Texas.┬áRandom forms you find on the Internet might not be enforceable where you need them to be – so don’t do you any good. Wouldn’t it make more sense to hire a lawyer to write something that actually does what you need it to do? This article is general advice; contact us for personalized help.