“I don’t want any of my employees to go work for my competitors.”
-Slightly Overzealous Entrepreneur
Keeping employees from jumping ship to a lead competitor is a massive headache for many companies. The solution seems simple, a non-compete contract either signed separately or as part of the employment contract that simply restricts him or her from working anywhere else, for any competitor, for the rest of their natural life. A quick search on the Internet will turn up plenty of this kind of non-compete.
However, public policy in the great state of Texas frowns upon making it impossible/difficult for a former employee to find a new job, and they will often invalidate an non-compete clause if it is overly broad. Fortunately, a narrowly crafted non-compete, designed to protect a legitimate business interest, will survive judicial scrutiny and allow you to prevent that employee from working for your worst enemy. Here are 2 key points to consider:
Part of an Enforceable Contract
The non-compete clause must be part of an otherwise enforceable agreement. An owner cannot simply slide a non-compete across the table, have his employee sign it, and expect it to be upheld in court. Because there is no consideration for the non-compete from the employer, i.e. only the employee has given something up, the contract is not valid. Contracts require both parties to give something up. Drafting an enforceable non-compete agreement after the employee has already begun working for you is a difficult task and should only be done after careful research.
If, however, this is a new hire, and the non-compete is part of the employment contract and is balanced by an increase in compensation, such as stock options, chances are good the courts will find it is part of an otherwise enforceable contract. But as always, it depends on the facts.
Reasonable Limits on Scope, Geography and Duration
The other item looked at by the courts when determining a non-compete’s enforceability is whether or not it contains reasonable limitations. It cannot generally prohibit an employee from working in an entire industry because this means she probably cannot get a job. Instead, it should specify a specific and narrow portion of that industry. Second, the non-compete cannot apply to the entire USA or often even to the entire state of Texas. Instead, it should list areas where the company does business, or, even better, places where the employee actually worked. Finally, the non-compete must expire after a reasonable time period, typically around 2 years but sometimes longer is ok. The more important the employee, the greater the restrictions can be.
Non-competes are enforceable in Texas but they must be narrowly crafted, or they risk being struck down by the court.