This is Part Two of my 4-part blog series on covenants not to compete. If you have not read Part One yet, please click on the link at the bottom of this page and you will be redirected to Part One. To summarize, in Part One, we addressed the “Who, What, When, Where and Why” of non-compete agreements. This second part will provide practical drafting considerations to achieve compliance with Texas law.
(1) Ancillary to Otherwise Enforceable Agreement – Ancillary means providing something in addition to a main part or function. Thus, a valid covenant not to compete must be something in addition to an already binding agreement between the employee and employer. A sure way to meet this prong is to require an employee to sign an employment agreement that includes a confidentiality agreement within it. A confidentiality agreement should promise access to confidential, proprietary information and/or trade secrets of the employer. The “otherwise enforceable agreement” is the employment agreement itself providing the terms and conditions of the employee’s employment, including the confidentiality agreement outlining the proprietary information that the employer intends to share with the employee during employment.
(2) Consideration Requirement – Providing an employee continued at-will employment status or continuing to pay the employee’s salary (without a raise or promotion) will not suffice as adequate consideration to bind an employee to a covenant not to compete. Each of the following have been held to be adequate consideration: (i) bonuses; (ii) a promotion; (iii) specialized/unique job training or additional certification; (iv) access to an employer’s confidential, proprietary information and trade secrets.
(3) Time, Geographical and Activity Restraints– Unfortunately, there is no black and white rule on these. The reasonableness of the restrained activity will ultimately depend on the employee’s job duties and corresponding importance/value added to the employer. Under no circumstance can the restraint be greater than necessary to protect the valid business interests of the employer.
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