Noncompetes & Unfair Competition

 A noncompete agreement is a legal contract between an employer and employee that prohibits the employee from working for a competitor for a certain period after leaving the employer's company. The purpose of a covenant not to compete is to protect a business’s investment in its business relationships. 

Under Texas law, noncompete agreements are enforceable if they are reasonable and do not impose an undue burden on the employee's ability to earn a living. To be reasonable, a noncompete agreement must be limited in geographic scope, duration, and the type of activity in which the employee is prohibited from engaging. The reasonableness of a noncompete agreement is evaluated on a case-by-case basis.

Texas law also requires that the employer provide the employee with consideration in exchange for signing the noncompete agreement. This consideration can take the form of a signing bonus, stock options, or other valuable consideration. Continued employment alone is generally not sufficient consideration.

Texas law does not provide a specific time limit for how long a noncompete agreement can be in effect, but courts have generally held that noncompete agreements with a duration of two years or less are reasonable.

It is important for both employers and employees to understand their rights and obligations under Texas noncompete law. Employers should ensure that their noncompete agreements are reasonable and provide adequate consideration, while employees should carefully review any noncompete agreements before signing and seek legal counsel if necessary.

Similarly, inducing a competitor’s employee to violate a noncompete agreement can lead to liability for the hiring company. The new employer could find itself facing claims of tortious interference with the noncompete contract. More broadly, the new employer could be liable for unfair competition—a tort that provides legal remedies for businesses that are harmed by unfair competition practices. 

Under Texas law, a business that has been harmed by unfair competition can file a civil lawsuit seeking damages, injunctive relief, and other remedies. The Texas Business and Commerce Code also provides for additional remedies, such as exemplary damages and attorney's fees, for businesses that can prove that the unfair competition was willful or malicious.

Because the law regarding covenants not to compete is ever-changing as technology advances in the global marketplace, whether you are part of a business seeking to enforce a noncompete or person bound by a noncompete that might not be valid, you need experienced counsel to assess your options. Attorney Shawn A. Johnson has extensive experience assessing, drafting, enforcing, and invalidating covenants not to compete and can help you with your noncompete issue.