On behalf of John McDuff, Attorney at Law
Offers of employment are often conditional upon employees promising not to compete with their employers for business when the employment relationship ends. Commonly referred to as covenants not to compete, noncompetition agreements or simply noncompetes, these agreements have spawned many business disputes.
Noncompetes cause friction because they define the contours of the relationship between a company that wants to protect its market share, customer loyalty, good reputation and confidential business information and the employee who wants to use his talent and skill in the same type of business and geographical area as his former employer. In determining whether such an agreement is enforceable, the law attempts to balance business’ desire to protect their market shares with a basic principle of American free enterprise — that someone who learns and grows in a business should be able to expand into the marketplace as a healthy competitor.
In Texas, noncompetition agreements are exclusively governed by the Covenants Not to Compete Act (CNCA), widely interpreted by Texas state courts since its enactment in 1989. Generally, the CNCA defines an enforceable covenant not to compete as one that is “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made” and contains restraints on the time, place and scope of competitive business activity that are reasonable. Restraints on potentially competitive activity must be the minimal necessary to protect the “goodwill or other business interest” of the employer.
The court may award an employer money damages, injunctive relief or both if an employee breaches a valid covenant not to compete. If an otherwise valid noncompete contains unreasonable restraints on time, geographical area or range of activity, a court may enforce the agreement after reforming the restraints to make them reasonable. If the employee can prove that the employer knew the covenant was unreasonable or unenforceable and tried to enforce it against the employee anyway, the court may award the employee costs and attorneys fees incurred in defending the lawsuit.