The Wonderfully Complicated and Confusing World of Non-Competes

Employers will often have non-compete clauses (also known as a “covenant not to compete”) as part of their employment agreements (for their employees), even if it’s “at-will” employment. At-will employment means that either party (employer or employee) has the right to terminate the employment agreement without reason at any time (subject to any notice or other requirements specified in the agreement).

What exactly is a “non-compete” though? A non-compete basically states that upon termination of the employment period, the former employee will not engage in activities that place him or her in competition with their former employer. In other words, a non-compete says that if I work for a company, learn everything about how the company works and what makes that company successful, then try to go out and start a competing business – that’s a no-no.

But for these clauses to be enforceable, there needs to be a “bargained-for-exchange;” that is, in exchange for the former employee giving up his right to compete, the employee should get something too (and getting the job isn’t enough because the employee is already getting compensation for that).

Though non-compete law varies from state to state, Texas requires:

  • the contract must contain reasonable restrictions on the geographical limits, restrictive time period, and scope of the former employee’s activities to be restrained.
  • the former employee’s promise not to compete must be “ancillary to or part of a related or underlying agreement” imposing binding obligations on the employer and employee.
  • the contract does not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise.

Non-compete law is wrought with complex legal theory and nuance. Attorneys can be very helpful in guiding clients through the potential minefields involved in non-compete law. Employers interested in incorporating non-competes into their employment agreements, employees who are being asked to sign one, or even former employees who are trying to figure out whether their previous employer could enforce a non-compete provision against them – should all seek legal advice from a competent attorney. Kabani & Kabani would be glad to assist you.

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