When and How You Can Enforce a No-Compete Agreement

How to Protect Your Business When Hiring

close up of businessman hands signing contract-1There’s inevitably some element of risk in hiring people to work in your business, and wise employers will always take steps to minimize it.

This is usually relatively straightforward for as long as an individual remains employed within the business and working under the direct supervision of management.

But the commercial and reputational risks posed by former employees may be much harder to control.

Non-compete agreements (also known as restrictive covenants) signed alongside employment contracts can be an effective way of avoiding potential problems, but there are some key issues of which employers need to be aware.

What is a Non-Compete Agreement?

A typical non-compete agreement restricts employees from entering into employment with a commercial rival for a specified period after their employment ends. Depending on the type of business concerned, a non-compete agreement may also be limited in its effect to a specific geographical area.

These agreements also normally prevent an employee from setting up a competing concern and doing business with customers of their former employer.

United States law has generally been unsympathetic toward non-compete agreements, regarding them as potentially restrictive of both individual rights and freedom of trade.

Nevertheless, the agreements have often been upheld providing that they are shown to protect a legitimate business interest and to be reasonable in scope. And as with any contract, both parties must provide consideration for the agreement to be valid.  

Are Non-Compete Agreements Valid in Texas?

It’s often thought that the 1983 Texas Free Enterprise and Antitrust Act outlaws non-compete agreements, but this is not the case.

In fact, the Act explicitly allows such agreements as long as they are “ancillary to or part of an otherwise enforceable agreement” and are reasonable in the protections they claim for the employer’s business.

Since the passing of the 1983 Act, there has been substantial litigation as to the kind of consideration which must be given to the employee if the non-compete is to be upheld.

The general trend of the courts’ decisions has been in favor of employers seeking to enforce non-competes. In 2011, for example, the Texas Supreme Court held that the granting of stock options by an employer could be sufficient consideration to validate a non-compete.

How to Enforce a Non-Compete Agreement

That being said, this remains a complex area of law and, if you are concerned that the behavior of a former employee is materially damaging your business and may be in breach of a non-compete agreement, you should seek qualified legal advice as soon as possible.

Although a simple “cease and desist” letter will often be sufficient to ensure compliance with the agreement, the input of an experienced attorney in drafting the letter can go a long way to ensure that no further action is required.

But if the employee ignores your cease and desist request, an attorney can then help you decide whether your case is likely to succeed in court, advise you on the remedies available and, if necessary, file a claim on your behalf.

If you are successful, the most likely outcome will be a court injunction ordering the employee to comply with the terms of the agreement. But in some circumstances, you may also be able to claim damages and recover the costs of the action.

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Our attorneys at the Tough Law Firm have years of experience in providing Texas employers with expert advice on non-compete agreements and a wide range of contractual and other legal issues.

If you have any questions about the issues discussed in this article, please call us on 281.681.0808 or visit toughlawfirm.net to schedule a consultation.

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Diana Tough

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