Texans: read this before signing your non-compete
Non-competes have always been a source of confusion. In which states are they enforceable? What is actually being protected? What happens if you’re fired?
The truth is, there’s no one clear answer. Each state has a unique set of laws regulating non-competes, and even within a single state, rules can be twisted or reframed depending on your unique situation.
To be safe, you should expect Texas courts – pro-competition in most other respects – to uphold a fair and reasonable non-compete agreement. Before you sign your future away, make sure you’re aware of the consequences, limitations, and possible protections at your disposal. Here’s everything you need to know before signing:
What makes a non-compete agreement enforceable?
It’s quite simple; to be enforced under Texas state law, a non-compete must fulfill the following requirements:
- It must be in writing.
- It must be “ancillary to or part of” an otherwise enforceable employment agreement.
- It must be reasonable in terms of time, geographic limitations, and scope.
These parameters appear relatively straightforward. But things start to break down when we consider the meaning of ‘reasonable in terms of time, geographic limitations, and scope.’
The fact is, what may be reasonable in one position may be excessive in another. To say that someone can’t work at a competing company for 2 years makes sense if the employee holds trade secrets that will remain relevant for the foreseeable future. If, however, the worker is employed in a fast-paced tech environment – 2 years is tantamount to a lifetime, and would be likely found unreasonable. Each case is different, but few agreements exceed 4-5 years.
In terms of geography, the designated area should be “no greater than needed to protect the interest of the employer and the confidential information and goodwill being protected by the agreement.” This means if your company only does business in a single state, you shouldn’t be prohibited from working in an adjacent state.
Scope is the hardest to define – but not impossible. Think of it this way; the role of the non-compete is to prohibit you from sharing trade secrets, confidential information, client lists, etc., with direct competitors. It should not, however, bar you from an entire industry. If your employer only handles a small niche of a larger sector, then the non-compete should stipulate that fact. When reviewing the agreement, always ask for clarifications in writing and don’t shy away from recommending modifications.
What are the consequences of breaking a non-compete?
Again, the specific ramifications will differ depending on the specifications of your agreement. We’ll say this, though – losing your new job should be the least of your concerns. If your previous employer can prove a DIRECT link between actions you’ve taken at your new employer and a loss of revenue, you may be held personally liable for the losses.
Checklist: what to ask yourself before signing.
- Is the agreement well-defined in terms of scope, duration, and location?
- How can I make the agreement more specific?
- Have I asked for all necessary clarifications in writing, saved to my personal computer?
- Does everything in the agreement relate directly to my role?
- How long do I expect to stay with this company?
- What will my next job be, and where will it likely be located?
- Will I be privy to any trade secrets or confidential information in this role?
Four smart ways to get out of your non-compete.
Just because you’ve signed, doesn’t mean the agreement is enforceable. There are a variety of ways to invalidate your contract; check out our top 4 list:
1. Unreasonable terms.
Remember how we defined ‘reasonable’ in terms of location, scope, and duration? Now it’s your turn. Review your contract – preferably before signing, but late is better than never – and determine whether the terms were truly fair and reasonable.
2. No legitimate business interest.
Was the intention of your non-compete to stop the spread of industry secrets? That sounds reasonable enough – assuming you actually had access to such confidential information.
If, however, you only accessed publicly available information, then you pose no threat to the company. There is therefore no legitimate business interest to protect, making the non-compete immaterial.
3. Termination without cause.
Not all courts will respect this argument, assuming the non-compete was signed consensually. But it never hurts to try.
4. Breach of employment contract by employer
A contract goes two ways – you agree to not jump ship to a competitor, and your employer approves of a certain set of provisions, agreed upon by both parties at the time of signing. If they break their side of the promise, the agreement is usually voided.
As an At-Will employee, can I be held to a non-compete agreement?
In the past, At-Will employees maintained that they should not be held to the same limiting contracts as other employees. These cases have not held up in Texas courts. So long as the agreement meets the requirements, it will be upheld.
What is a non-solicit agreement, and how is it different from a non-compete?
Non-solicit agreements are usually grouped with, or fall under, non-compete contracts. They stipulate that an employee cannot solicit former clients, customers, or co-workers. Since it’s so similar to non-compete agreements, it generally follows the same requirements – meaning the agreement must be reasonable in terms of scope, location, and duration.
Is a non-compete agreement valid if it’s signed after I’ve already started the job?
Absolutely. In one Texas Supreme Court case, the agreement was signed four years into the employee’s career. Again, as long as the agreement meets the stipulated requirements, it will likely be enforceable.
What if I can’t get out of my agreement?
All hope is not lost. First, speak with your previous employer and inform them of the situation. Make a case for why the non-compete does not apply (see above for ideas) – if they don’t see you as a direct threat, they will often allow you to disregard the contract purely out of laziness.
If that doesn’t work, and you’ve found a new job and company you truly love, brainstorm with your new company to come up with creative ways to continue working while respecting the agreement.
Finally, consult with a lawyer. If you think you have a legitimate case, don’t allow a non-compete agreement to blemish your future career.
When our Managing Partner Megan Walker first came to Proven Recruiting, she was ensnared in a binding non-compete that would last her nearly a full year. But we knew she was special and were determined to make it work, without breaking any laws.
In the end, we had Megan work as support for our San Diego office (outside the limitations of the geographic clause) until her non-compete expired. When there’s a will, there’s a way.