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What you need to know about enforceable non-compete agreements

In today’s economy, ideas and information tend to be much more valuable than manufactured products. Many Texas businesses, large and small, understand that trade secrets and intellectual property need to be protected, especially from competitors.

One of the most important ways of protecting your company’s proprietary or confidential information is by having your employees sign non-compete agreements. The terms of these agreements vary, but it is common for companies to prohibit former employees from working for a competitor for a certain period of time or within a certain geographic area.

Non-compete agreements are recognized by Texas courts, but they may not be enforced (or considered valid) unless they meet several criteria. Key among these is that they must be considered reasonable.

The terms of the agreement need to be reasonable in both scope and duration. If you put a geography restriction in the agreement, for instance, it could not be so broad as to prevent a former employee from working anywhere else in Texas. Nor could you include a duration of, say, 10 years. What is considered “reasonable” will depend on the specific facts in a given case.

Next, non-compete agreements must protect only legitimate business interests. Provisions cannot simply punish an employee for quitting by imposing restrictions that have little or nothing to do with the actual interests of the company.

Finally, courts generally require that employees receive some benefit in exchange for signing the agreement. If the agreement was signed as a condition of getting hired, the job would likely be a sufficient benefit. But the same might not be true if an employee is asked to sign a non-compete agreement after working for the company for several years. The “value” of keeping a job he already has would likely not be sufficient benefit. The only exception to this would be a promotion within the company or a similar perk.

Non-compete agreements are an important way to protect your business. But in order to be effective, they must be enforceable. An experienced business attorney can help your company draft enforceable agreements and help you litigate when former employees violate them.

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