Welcome to Texas Business Matters! Today we start our 10-part series on non-compete agreements. In this series, we will cover what is a non-compete agreement; under what circumstances a non-compete agreement is enforceable under Texas law; the difference between non-compete, non-solicitation, and non-disclosure agreements; how to determine whether your business needs a non-compete agreement; what remedies an employer can seek when an employee has breached a non-compete agreement; and the latest cases interpreting non-compete agreements.

First, what is a non-compete agreement? A non-compete agreement is a contract between an employer and employee that prevents the employee from working for the employer’s competitors. Non-competes are not legal in every state. In California, for example, non-compete agreements are considered to be an illegal restraint on trade and so are not enforced. In Texas, however, non-compete agreements are legal and enforceable, provided they meet certain requirements.

Specifically, to be enforceable in Texas, an employer must provide the employee consideration, or something of value, in exchange for his agreement not to compete, usually in the form of confidential information, trade secrets, specialized training, or access to valuable business relationships. According to a recent case from the Texas Supreme Court, stock options are also sufficient consideration to support a non-compete agreement.

In addition, a non-compete agreement must contain reasonable restrictions on time (the length of time an employee can be prohibited from working for a competitor), geographic area (the geographic area in which an employee can be prohibited from working for a competitor), and scope (the kind of duties an employee can be prohibited from providing to a competitor).

For employees who are doctors or physicians, there are additional requirements, including (1) the non-compete agreement must allow the doctor access to a list of the patients she has seen in the past year and those patients’ medical records; and (2) the non-compete agreement must allow the doctor the option to “buy out” of the agreement at a reasonable price.

In the next blog, we will address the difference between non-compete, non-solicitation, and non-disclosure agreements and how to determine whether your business needs a non-compete agreement.

Any questions? Let us know how we can help.