Non-compete clauses or agreements in contracts are designed to protect you from losing sensitive information to your competitors. By signing an agreement, an employee promises that they will not work for your competition for a specified period of time. This not only helps you retain your employees, but it also protects information that is at the core of your business.
In Texas, non-compete clauses are gaining legal strength as they become more common. In order to be enforceable in our state, any non-compete agreement must be reasonable with respect to the scope of the work that is prohibited, the geographic area covered, and the duration that the non-compete agreement will be in effect.
Ultimately, the best time to have an employee sign a non-compete agreement is at the time of hiring. Therefore, if your business does not currently have a non-compete clause added to your initial contracts, it would be a good idea to do so before hiring any more employees. Conversely, you can request existing employees sign the agreement.
However, you should be aware that it is very difficult if not impossible to terminate an existing employee who refuses to sign the agreement.
What are Non-Compete Agreements?
Here are some things that are at the core of non-compete agreements and some things you need to think about:
- Enforceability of the Agreement – It is easy to draft language stating that your employees will not compete with you; however, it is always wise to ask for a business lawyer’s advice before finalizing and language. This will ensure that the agreement is enforceable should you ever need to pursue the issue.
- Reasonableness of Restrictions – Are the restrictions reasonable or are they pushing the limits? You need to consider both geographic and time restrictions to ensure they fit within the statute. Otherwise, you could be on the hook for a countersuit based on your misinterpretation of the law.
- Consideration to the Employee – If you deliver a non-compete agreement as part of the initial employment contract, then you have provided adequate consideration to your employee. On the other hand, if you require existing employees to sign an agreement after their date of hire, it gets considerably murkier. Many times, former employees given a non-compete post-hire will challenge non-compete agreements claiming they did not receive adequate consideration. However, if you offer a payment, such as a $500 or $1,000 bonus, and require the employee to sign the non-compete to receive said bonus, you have provided adequate consideration and can’t be challenged on this basis.
Where Can I Find Out More About Non-Compete Clauses?
For help drafting contracts and creating rock solid non-compete clauses, give business lawyer Kenneth Netardus at the Amarillo law firm Stockard, Johnston, Brown, Netardus & Doyle, P.C. a call at 806-372-2202. Our experienced business lawyers will be happy to guide you through the process of protecting your company and the trade secrets that are making your business successful.