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Noncompete agreements must be reasonable

Noncompete agreements are contracts employers can have employees sign to protect company information in the event the employee leaves the company. Through a noncompete agreement, an employer typically seeks to ensure an employee, upon resignation or termination, does not immediately go to work for a competitor, solicit the company's customers or employees, or share sensitive company information or secrets. However, under Texas law, and in other states as well, a noncompete agreement cannot unreasonably restrict an employee with regard to future employment.

To avoid potentially costly disputes, employers and employees need to know how noncompete agreements work and what they cover. 

What does it mean for a noncompete agreement to be reasonable?

Under Texas law, and generally in other states as well, a noncompete agreement must be reasonable with regard to:

  • Scope: A noncompete agreement cannot be unreasonably broad in how it restricts an individual from working. For example, an agreement that restricts an tech industry employee from working in any kind of job in the same industry, will likely be found too broad and unenforceable.
  • Duration: If the noncompete agreement is designed to protect an employer's confidential information, the length of the restriction in the non-compete provision should depend on how long the confidential information has value. While every situation is different, non-compete restrictions that are longer than two years will generally be subject to considerably higher scrutiny than those that are two years or less.
  • Geographic limitation: Depending on the type of industry the employer is in, the geographic area where the employee cannot work will vary. However, the area must be reasonable, and a good rule of thumb is that an employee should not be restricted in an area larger than the the area for which he had responsibility on behalf of the employer.

What should the employee get in exchange for signing the agreement?

Under Texas law, for a noncompete agreement to be valid, the employer must generally promise to provide the employee confidential information and the employee must promise not to disclose the confidential information. The non-compete provision must then be designed to enforce the employee's promise not to disclose the confidential information. Other forms of consideration may also form the basis for an enforceable non-compete if the consideration is related to or gives rise to the need to restrict the employee from competing.

Seeking legal help

If you are an employer who feels an employee has violated a noncompete agreement, or if you are a former employee who is being accused of violating the agreement, it is best to seek counsel from an employment law attorney who is Board Certified in Labor and Employment Law or Civil Trial Law by the Texas Board of Legal Specialization. For more on that, please see Fiddler & Associates, P.C.'s employment law overview.

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