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Is Your Noncompete Enforceable?Many employers and employees have signed noncompete, non-solicitation
and non-disclosure agreements. One of the questions we, as lawyers, are
most often asked is whether these agreements are enforceable in Texas. The
answer largely depends on the agreement. Certainly enforceable agreements
can be drafted. Over the course of the last year, however, Texas courts,
especially those in Dallas, have clarified the rules making it more
difficult to enforce noncompetes. Now, more than ever it has become
necessary to re-examine each part of the agreement to determine if the
agreement is, in fact, enforceable. What is a Noncompete Agreement?Generally, a noncompete agreement appears as a statement in an
employment agreement providing that in return for some stated
consideration, the employee agrees he will not compete with the employer
for a specified time period (i.e. six months or one year) after the
employee leaves or is terminated. Most often, the employer remains an
at-will employee, meaning he can leave his job or be terminated for any
reason except an illegal reason. What is the Controversy Over "The Enforceability" of Noncompetes?Virtually all of the recent discussions about enforceability centers around what is sufficient consideration and when does it have to be exchanged. For example, with every contract, such as purchasing a home, something of value is exchanged between the parties at closing-which is the time the deal is completed. Likewise, with noncompetes, the important moment is at the time the agreement is signed. With noncompetes, this time period is dictated by statute. Thus, a court will look to see if at the time the agreement was signed something of value was given by the employer to the employee in exchange for the agreement not to compete. Further, the type of consideration for noncompetes is important.
Generally, courts do not like to enforce noncompetes because they are
considered restraints on trade and could prevent an employee from
obtaining a job which would feed his or her family. Thus, the
consideration for a noncompete must be of a type which would "give rise"
to a reason to restrain trade. That appears to be code words for
confidential information or specialized training. Overall, to be
enforceable there needs to be confidential information or specialized
training provided to the employee at the time the agreement is made. What Other Requirements are Necessary for a Noncompete?In addition to the consideration and timing requirements, the
noncompete must be reasonable in scope, time or geography. Specifically,
the noncompete should be related to the clients or subject matter on which
the employee worked while employed; the time period restrained should
likely be no more than two years and the geographic restrictions should be
reasonably related to the employer's business. The applicable statute
provides for reformation of the noncompete if it is enforceable, but
overly broad in scope, time, and geography. If, however, the agreement is
so broad that it is viewed as unreasonable, it may be judged
unenforceable. The agreement should be drafted to be narrow enough to be
enforceable, yet broad enough to protect the business. What About Nondisclosure and Nonsolicitation Covenants?Nonsolicitation covenants are agreements not to call on or solicit clients or customers of the business once an employee leaves. Because they arguably restrain trade, meaning they limit the employees ability to work, they are treated like noncompetes and the same analysis is applicable. Nondisclosure covenants are agreements not to use or disclose
confidential information. Nondisclosure covenants are more frequently
enforced than noncompetes because they do not restrain trade. Meaning,
they do not prevent an employee from seeking new employment. Further,
there is a common law duty not to use or disclose confidential
information. Therefore, even without an agreement, there is a duty owed by
the employee. The agreement is worthwhile, however, because it becomes
contractual and could allow for the recovery of attorney's fees if an
enforcement action becomes necessary. What Can be Done to Enforce a Noncompete?Many employers seek to enforce a noncompete by obtaining a temporary
restraining order. By its nature it is temporary but it does restrain an
individual from conduct for generally at least seven days. This means it
could keep a person from working for a competitor for that time period
until the hearing on the temporary injunction is scheduled. The temporary
injunction hearing requires the person or entity pursuing the relief to
show imminent harm, irreparable injury and that there is no adequate
remedy at law. In other words, that money will not solve the problem. The
purpose of the temporary injunction hearing is to freeze the circumstances
or preserve the status quo until the time of trial. The matter will still
be tried to determine if the noncompete was enforceable, the employee
breached the agreement and whether confidential information was used or
disclosed. ConclusionAs you can see, the world of noncompetes can be complex. More
importantly, for the noncompete to be enforceable, it must be drafted
correctly with the appropriate consideration given at the appropriate
time. While we have attempted to simplify the analysis, the cases discuss
whether the agreement is "ancillary to an otherwise enforceable agreement"
at the time the agreement is made and there also remain many issues
regarding existing employees and what to do about past consideration. In
other words, if the employer has already given the employee the
confidential information, can it bind him to a noncompete without giving
him something new? (The answer is most likely no.) Bottom-LineDue to the complexity of these issues, if you believe either the noncompete or non-disclosure needs a second look, you may wish to do so before your top-sales associate finds a new position. Likewise, if you have signed a noncompete and question its enforceability, it may be worth seeking an opinion before you find that dream job.
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