Welcome to Texas Business Matters! This is our second blog in a ten-part series on non-competes. In the first blog, we addressed what is a non-compete and under what circumstances non-competes are enforceable in Texas. In this blog, we address the difference between non-compete, non-solicitation, and non-disclosure agreements and how to determine if your business needs a non-compete.
As discussed in the previous blog, a non-compete agreement is a contract between an employer and employee that prevents the employee from working for the employer’s competitors (or from starting a competing business). A non-solicitation agreement, by contrast, allows an employee to work for the employer’s competitors but prevents the employee from soliciting the employer’s customers (and employees and suppliers). A non-disclosure agreement allows an employee to work for the employer’s competitors but prevents the employee from using the employer’s confidential and proprietary information in his new job.
Practically speaking, non-compete, non-solicitation, and non-disclosure agreements are often combined into one agreement. But because non-competes may prevent a former employee from earning a living in the area where he lives, some courts are reluctant to enforce them. Further, a non-compete is not always necessary to protect the employer’s interests. Sometimes an employer’s interests can be protected by a non-disclosure and non-solicitation agreement.
When is a non-compete truly necessary? How can you determine if your business needs a non-compete? To determine whether your business needs a non-compete, ask yourself these questions:
- Does the success of your business depend on confidential or proprietary formulas, processes, methods, strategies, or information which, if shared with a competitor, could spell ruin for your business?
- Do your employees have access to this information?
- Is there any likelihood that a former employee will share this information with a competitor?
If the answer to all three of these questions is yes, then, in addition to a non-disclosure and non-solicitation agreement, which are essential for most businesses, your business needs a non-compete.
In the next blog, we will cover what remedies an employer can seek when an employee has breached a non-compete.
Any questions? Let us know how we can help!