Are There Geographic Limitations on Texas Non-Compete Agreements?

Are you an employer or employee with questions about geographic limitations in your non-compete agreement in Texas? Wood Edwards LLP is here to help you understand your what your limitations might be.

One of those questions frequently concerns specific restrictions on geography, or where the employee is permitted to work.

These employers and employees often want to know whether there are geographic limitations on Texas non-compete agreements. Here is the answer: In some cases, yes.

To determine the proper geographic scope of a non-compete, a Texas court will first review where the employee performed his work for the employer. Sometimes, this is a fairly easy determination (for example, a salesperson may have a defined territory).

In other situations, an employee—because of his executive role, or his knowledge of confidential information—may be subject to a broader restriction. Also, where the company does business is relevant, as is how the company does business.

On the latter point, a worldwide restriction can sometimes make sense if the employer, for example, does its transactions via the internet. We want to provide you with more information about geographic restrictions on non-compete agreements in Texas and some examples of when these restrictions are likely enforceable or unenforceable.

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Reasonable Geographic Restrictions Tend to Be Enforceable in Texas Non-Compete Agreements

For any non-compete agreement in Texas to be enforceable, the Texas Covenants Not to Compete Act requires restrictions be reasonable. Accordingly, the scope of the restriction on the employee’s work must be reasonable, as must the temporal duration placed on the non-compete agreement.

Likewise, any restrictions on geographic areas or customers in particular areas must be reasonable to protect the employer’s business interests.

To determine whether a geographic restriction is reasonable, courts typically will look at a variety of issues that we mentioned above, which often include the following:

  • Employee’s specific role within the business;
  • Employee’s geographic location;
  • Employer’s geographic location;
  • Location(s) where the employer does business;
  • Employer’s method(s) of doing business.

Since reasonableness is not objective, courts usually looks at all of the facts when determining whether a geographic restriction is reasonable to protect the employer’s business interests. We want to provide you with some hypothetical examples that can help to clarify the factors listed above.

Geographic Location of the Employer and Employee in the Non-Compete Agreement

The geographic location of both the employer and employee can help to determine whether certain geographic restrictions are reasonable. For example, if an employer is located in Dallas, TX with its headquarters there, but it also has offices in Austin, San Antonio, and El Paso, a non-compete agreement might restrict an employee from working in any of those cities for a specific period of time.

In such a scenario, a court may determine this kind of geographic restriction to be reasonable to protect the business’s interests since it has offices in all cities. Differently, however, if a business that is hyper local to Dallas—with no other offices in Texas—tries to enforce a non-compete agreement that contains geographic restrictions in all of the cities listed above, such restrictions likely are not reasonable.

In terms of the employer’s location, for sales employees especially, geographic restrictions almost always will be enforceable. This is based on the employee’s specific sales region.

How the Employer Does Business

As we mentioned above, the employer may be an online retailer that does business throughout Texas and across the country. In many cases, online retailers actually do business across the globe. So, a worldwide geographic restriction for a limited period of time may be enforceable.

However, if an employer does not do business on the internet and all business is specific to Texas, any type of nationwide or global geographic restriction may not be enforceable.

Geographic restrictions and limitations in non-compete agreements frequently are enforceable. However, they must be reasonable given all of the facts.

Wood Edwards LLP Can Help With Your Texas Non-Compete Agreement

We assist many employees 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.