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Non Competition Agreements and Employee Handbooks Don’t Go Hand in Hand

In Texas, non competition agreements are governed by Section 15.50(a) of the Texas Business & Commerce Code, which requires two basic factors for enforceability. First, employers must provide consideration in exchange for assent to the restraint on competition by an employee or contractor. Second, finite restraints on time, geographical area, and scope of activity are required but they must be reasonable and not impose a greater restraint than is necessary to protect the goodwill or other business interest of the employer.

Simply paying the employee or contractor is not enough to satisfy the consideration requirement; some consideration above and beyond the worker’s normal compensation for his day to day work is necessary. At the bottom end, Texas courts have found that stock options may be sufficient consideration. But a more safe path is to explicitly promise to provide the employee or contractor with confidential information, trade secrets, or specialized training. In exchange, the worker should promise to keep this information confidential, to return it upon termination of employment, and not to disclose it for a fixed period of time after the employment relationship ends.

It is important to also remember that the non compete provision must be ancillary or part of an otherwise enforceable agreement or contact. This is generally accomplished by incorporating a confidentiality agreement into the contract containing the covenant not to compete. A common pitfall is to simply insert non competition language listing the intended restraints within an employee handbook. While mutual promises contained within an employee handbook may be enforceable, employers often choose to insert disclaimers of contract within their handbooks so as not to be strictly bound or to create the appearance of something beyond at-will employment. If your handbook explicitly states that nothing contained within may be construed to create a contract, it may not be prudent to rely solely on non compete language in the handbook as a court may find the promise to be illusory.

R. D. Adair, PLLC offers experienced business counsel and can assist you with your employee handbook and non-compete agreement issues. To learn more about the preparation of a non-compete agreement,  or how we can assist you in a related matter, contact us today to schedule a consultation.

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