Are Non-Compete Agreements Enforceable in Texas?
Are you a Texas employee considering entering into a non-compete agreement, or an employer who needs to create or attempt to enforce a non-compete agreement for current or future employees?
Understanding non-compete agreements and if they are enforceable in Texas can be difficult.
In short, non-compete agreements can be enforceable in Texas. We’re here to help you understand your non-compete agreement.
Texas is a “right to work” state (which means that no one can force you to join a labor union). So, many people assume that non-compete agreements are unenforceable here.
In fact, non-compete agreements are more enforceable in Texas now than just a few years ago. Several Texas Supreme Court decisions have taken away enforceable arguments that were effective. So, both employers and employees should know that non-compete agreements are enforceable in Texas.
Below there is more information about what it means that Texas is a “right to work” state. Also, there will be information about why that status does not impact non-compete agreements. Additionally, we want to provide more information about non-compete agreements. We will provide situations in which a non-compete agreement might not be enforceable under Texas law.
Question about a Texas Noncompete Agreement?
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What it Means That Texas is a “Right to Work” State
As we mentioned above, many people assume that non-compete agreements in Texas are unenforceable. People believe this because Texas is a “right to work” state. This term does not actually have any bearing on an employee’s rights to violate a non-compete agreement that she or he signed.
To be clear, while the term “right to work” might suggest that an employee has a right to work in any capacity even if she or he signed a non-compete agreement, this is not how the term is used.
Under the Texas Labor Code, an employee’s “right to work” refers to the employee’s rights even if the employee joins or refuses to join a labor union or labor organization.
Texas’s “right to work” law means that an employee cannot be prevented from working just because she or he makes a particular decision with regard to membership or non-membership in a labor organization. The “right to work” law ensures that it remains the employee’s choice whether or not to join a labor union.
Texas Covenants Not to Compete Act
Texas statutory law clarifies that a non-compete agreement—also known as a covenant not to compete—can be enforceable in the state. However, there are limitations on enforcement. The Texas Covenants Not to Compete Act states:
A non-compete is enforceable if it is part of an otherwise enforceable agreement to the extent that it includes limitations as to time, location, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the business interest of the promisee.
Texas Supreme Court Strengthens Enforcement of Non-Compete Agreements in Texas
Even though Texas is a “right to work” state never had any bearing on the enforceability of non-compete agreements. Employers and employees are seeing that non-compete agreements are even more enforceable than they used to be.
As we mentioned above, several recent Texas Court of Appeals and Texas Supreme Court cases have strengthened the enforceability of non-compete agreements in the state. We want to provide you with some additional information about a couple of these cases. As well as their implications for enforcing non-compete agreements in Texas.
Mann Frnkfort & Lipp Advisors, Inc. v. Fielding (2009)
For example, in Mann Frankfort & Lipp Advisors, Inc. v. Fielding (2009), the Texas Supreme Court had to decide “whether a covenant not to compete in an at-will employment agreement is enforceable when the employee expressly promises not to disclose confidential information, but the employer makes no express return promise to provide confidential information.”
The Texas Supreme Court determined that, in employment situations where the nature of the employment “will reasonably require the employer to provide confidential information to the employee,” then the employer makes an implied promise. Accordingly, the non-compete agreement is enforceable. This decision broadens the scope of enforceable non-compete agreements from express promises to implied ones.
Marsh USA v. Cook (2011)
Then, in Marsh USA v. Cook (2011), the Texas Supreme Court again expanded the scope of enforceable non-compete agreements. It departed from 1994 ruling that limited the enforcement of non-compete agreements or covenants in the state, and it reevaluated the Texas Covenants Not to Compete Act.
In Marsh, the Court used a new test for deciding whether a non-compete agreement was enforceable. In this case, a “valued employee” signed a non-compete agreement “in consideration for stock options, designed to give the employee a greater stake in the company’s performance.”
The employee argued that the covenant not to compete was unenforceable because the stock options “did not give rise to an interest in restraining competition,” which was part of the test used previously to determine enforceability of a non-compete agreement.
The Court in Marsh determined that, since the stock options were “reasonably related to the company’s interest in protecting its goodwill,” the agreement could be enforced. The Court shifted from language of “gives rise to” to “reasonably related to” to decide enforceability. This allows for broadening the types of non-compete agreements that can be enforced.
When Texas Non-Compete Agreements May Be Unenforceable
If the Texas Supreme Court has been expanding the scope of enforceable non-compete agreements in a manner that is friendlier to employers than employees, what kind of situation might result in an unenforceable non-compete agreement?
Generally speaking, to be enforceable, a non-compete agreement’s restrictions must be reasonable, the employee must be provided with sufficient consideration. What kinds of provisions might be unreasonable? First, a non-compete agreement must be reasonable in addressing the scope of the employee’s activity. In addition, the temporal scope of the restriction must also be reasonable.
For example, in terms of reasonable activity restrictions, if Employee A works as a salesperson for Company X, a court in Texas likely would determine that a provision is unreasonable if it prevents Employee A from going to work for Company Z in a completely different capacity than as a salesperson.
Typically, the employment under restriction must be similar in nature. In terms of the temporal duration of the agreement, a court likely would find a non-compete agreement unreasonable—and thus unenforceable—if it prohibits an employee from working for a competitor for the next 30 years.
Wood Edwards LLP Can Help With Your Texas Non-Compete Agreement
We assist many independent contractors bound by non-compete agreements in Texas. Also, we are extremely familiar with Texas law governing these types of agreements. Our firm has substantial experience with this field inside and outside Texas courtrooms.
In addition to employees, we also represent companies. This makes us incredibly valuable because we know how employers can view violations of non-compete agreements.
If you are party to a non-compete agreement, or have a legal matter involving a non compete in Texas, contact us today.
Learn more about non-compete agreements in Texas:
- Are Independent Contractors Bound to Non-Compete Agreements in Texas?
- Are There Geographic Limitations on Texas Non-Compete Agreements?
- Strategies for Getting Out of a Non-Compete Agreement in Texas
- Why It’s Critical for Texas Physicians to Have their Employment Contracts Reviewed by a Lawyer
- The Scoop on Non- Compete Clauses in Physician Employment Contracts