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As I discussed in a previous blog, non competition agreements are an important tool for businesses to protect their economic interests—but a good understanding of how Texas courts view such agreements is necessary to prevent your agreement from being deemed ineffective. With a few rare circumstantial exceptions, a non competition agreement that is indefinite or without geographical limitations will be ruled unreasonable and unenforceable. The “reasonableness” of a non competition agreement is a question of law that a court decides. In a recent case decided by the Dallas Court of Appeals, the Court found the time limitation of a non competition agreement to be indefinite in effect, and the agreement was therefore unenforceable. In Richard P. Dale, Jr., d/b/a Senior Healthcare Consultants v. Hoschar, No.10-0860-4, Senior Healthcare Consultants (SHC) sued former insurance sales agent Hoschar for violating a clause in her independent contractor agreement. The relevant part of the clause prevented Hoschar from attempting to replace business with any policyholder by “soliciting or offering competing policies of insurance to any policyholder to which Agent sold any policy of insurance pursuant to the terms of this Agreement”. SHC argued that the phrase did not restrict Hoschar from soliciting policyholders after they renewed their coverage, and therefore imposed a reasonable time limit that was circumscribed to the duration of any current policies held by the insured. The Court of Appeals disagreed, finding the agreement indefinite as to time, and ultimately unenforceable because it lacked an express exclusion of renewal policies, which the policyholders could theoretically effect repeatedly and forever. This ruling is yet another reminder for employers to be very careful when drafting non competition agreements. Close scrutiny must be given to the specific language used, the practical effects, and the broader context of the agreement, in order to survive challenges to any future enforcement of the agreement.
R. D. Adair, PLLC offers experienced business counsel and can assist you with your 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.