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Protecting your Texas business assets with noncompete agreements

 Posted on September 13, 2016 in Uncategorized

Thank you for visiting our new blog. In this first post, we will introduce the noncompete agreement and the important role it can play in the success of a Texas business of any size or type.

Texas business climate is thriving

The business environment in Texas has improved greatly since the recession and both home-grown entrepreneurs and recent transplants are hanging up shingles here. In 2016, Texas ranks third overall among top states for doing business considering such factors as access to generous financing, favorable regulatory structure, relatively low state tax burden, competitive labor market and affordable energy costs, according to this year's national analysis by Area Development.

Once you have decided to launch your business in the Lone Star State, finding an attorney to guide you through all the important decisions in startup and business formation is imperative. When your attention eventually turns to hiring the right help, you should thoroughly explore with your lawyer and understand the benefits of noncompetition agreements and how to draft them to be enforceable under Texas law.

The reasons for covenants not to compete

So why are noncompetes important? At the core of any business is the value of its intangible assets: those things that cannot be physically measured, but that fuel its value and success. Among the most important intangible assets are customer lists and relationships, community goodwill, research, inventions, business model, operational processes, technology and trade secrets.

A noncompetition agreement requires a key employee to do (or not do) certain things if he or she leaves the business such as:

  • Not working for a competitor
  • Not luring away other employees to work for a competitor
  • Not soliciting the businesses' customers
  • Keeping intangible assets and business secrets confidential

Texas statutes and cases governing valid and enforceable noncompetes are complicated and it is important to have legal counsel who can create such agreements for the business.

Texas noncompete law

Texas has specific statutes that establish the criteria for an enforceable noncompetition agreement and legal remedies for breach of such an agreement. To be enforceable, a noncompete in Texas must:

  • Be "ancillary to or part of an otherwise enforceable agreement," meaning that the noncompete cannot be thrust upon the employee with no meaningful, mutual agreement in which the employer also gives up or promises something reasonably related such as granting stock options, providing special training or granting access to confidential information
  • Future employment restrictions on time (how long the employee must refrain from competitive employment), geographic area (where does the restriction apply) and scope of activity (job description) must be reasonable and only at the minimum level needed to protect the employer's business interest

(Different standards apply in the medical context.)

The original employer may sue a former employee for breach of a noncompete. The court may award money damages or injunctive relief (a court order to do or not to do a specific thing) or both. If the court finds the time, geography or scope of activity limits unreasonable or greater than necessary to protect the employer, the court shall reform the covenant to make it reasonable and not excessively restrictive.

This is a very basic introduction to Texas noncompetes. The complexity of the topic merits any Texas business owner to consult carefully with an attorney about any action contemplated in this area.

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