Many people assume Texas courts rarely uphold non-competes. In fact, Texas law allows them, but only when they meet specific requirements. If you are thinking about enforcing a non-compete or responding to a dispute over one, understanding those requirements may help you decide on a next step.
What makes a non-compete valid in Texas?
A non-compete must be part of, or connected to, a separate agreement that is otherwise enforceable when the parties make it, such as a promise to share confidential information or stock options linked to protecting business goodwill.
The restriction must also protect a legitimate business interest, such as trade secrets or customer goodwill. A restriction that only limits competition, without a real interest behind it, will not hold up.
How do courts decide whether the limits are reasonable?
Texas law also asks whether a restriction is fair in how long it lasts, where it applies and what type of work it covers. None of these limits can go beyond what the business needs to protect its interest.
In an employment setting (agreements primarily for personal services), the business must show the covenant is reasonable. In other settings, such as the sale of a business, the person challenging it must show it is not.
What happens if a non-compete is too broad?
If a non-compete is otherwise valid, a court cannot simply throw it out for being too broad. Texas law instead requires the court to narrow, or reform, the terms and enforce them as revised. The Texas Business and Commerce Code bars a business from collecting money for anything that happened before the court reformed the terms, which leaves an injunction as its only remedy.
If the business knew the terms were unreasonable when the agreement was signed and still tried to enforce them beyond what was necessary, the employee may also recover reasonable attorney’s fees.
How can a business enforce a non-compete in court?
A court may award damages, an injunction or both when someone breaches an enforceable non-compete. An injunction is a court order that can stop the competing activity. Acting promptly is critical, as Texas courts require evidence of imminent, irreparable injury before granting temporary injunctive relief. Narrowly written terms may also reduce the risk of reformation and its limits.
Whether a non-compete holds up depends on the specific agreement and the facts behind it. If you are facing a dispute, it may help to speak with a business litigation attorney to understand your options under Texas law.