covenants

Covenants Not To Compete

Covenants not to compete can be useful to protect a business. However,
Texas statutes and case law impose many restrictions on these agreements. It
is essential to draft these documents with specific language that addresses the
law. To be valid in Texas, a covenant not to compete must not impose a
greater restraint than is necessary to protect the goodwill or other business
interest of the business. In addition, the following criteria must be met:

Consideration

The employer must give the employee some form of consideration other
than employment. To be safest, it is advisable to actually pay the employee a
sum of money in return for his or her promise not to compete. Courts have
also held that the consideration requirement can be fulfilled by giving the
employee special training.

Time constraints

The covenant mus be reasonable in the time constraints. Although the
statute does not specify what period is reasonable, a period of two years or
less is usually advisable. The reasonableness of this and the other constraints
is determined on a case by case basis.

Scope

The covenant must be reasonable in its scope of activity to be constrained.
For instance, it would be unreasonable to limit a former employee from
competing in an unrelated business. The scope should be very specific in the
limitations of the scope of activity to be constrained.

Geographic area

The covenant must be reasonable in its limit on geographic area. For
example, it would be unreasonable to prohibit a former employee who is a
doctor from working in another city. It might be reasonable to limit the
doctor from competing in a 10 mile radius.

Covenants not to compete have always been a difficult issue for Texas
Courts. The Courts do not like to limit a former employee's right to work.
However, a well drafted agreement can protect the employer's interest as
well as serving as a deterrent to former employees.

Not Certified by the Texas Board of Legal Specialization