Noncompete & Trade Secrets

Noncompetes are becoming more prevalent. In the beginning, noncompetes were reserved for high-level executives, big producing salespeople, and folks with technical know-how. Now, noncompetes are creeping into nearly every imaginable job category, including hourly workers and part-timers. IMcP’s noncompete lawyers often draft, negotiate, advise, and litigate restrictive covenants (noncompetes, nonsolicits, and nondisclosures).

Companies may have legitimate bases to enforce reasonable covenants. There have been other examples and arguments where noncompetes were used to “chill” an employee’s thoughts of leaving for a competitor for better pay and job prospects, never knowing whether or not the employer would actually go through the time and expense (e.g. attorneys’ fees and costs) of enforcing the restriction. Noncompetes are also valued by some employers related to competitive actions by other companies seeking to poach employees who are subject to noncompetes.

So, clients almost always want to know if the noncompete will be enforced by the existing or old employer, whether it would be enforceable, and what happens if a TRO or injunction is granted. These are fact-specific and circumstance-intensive questions requiring a noncompete attorney to evaluate how judges in the likely forum view noncompetes (especially as to a potential TRO or injunction), the reputation of the specific company or industry in aggressively enforcing noncompetes, and analyzing the specific language of the noncompete against the relevant case law.

Naturally, there are other recurring questions IMcP’s noncompete lawyers are asked. Some of those questions are:

Is a noncompete enforceable in Texas?

Yes, if written to comply with Texas law. Specifically, noncompetes must:

  1. be ancillary to or part of an otherwise enforceable agreement;
  2. contain reasonable limitations regarding time;
  3. contain reasonable limitations regarding geographical area;
  4. contain reasonable limitations regarding scope of activity;
  5. not impose a greater restraint than necessary to protect the company’s business interest.

Each of those requires additional analysis. For example, to answer whether the noncompete is “ancillary to or part of an otherwise enforceable agreement,” the analysis often looks to the same noncompete agreement, and whether that agreement includes a promise by the company to provide the company’s confidential information.

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What is a “reasonable” time limitation for a noncompete?

The recurring argument is that two years is the upper limit of a reasonable time limit for a noncompete, but the answer is much more nuanced. The more complete answer is that a reasonable time limitation is the amount of time that a former employer can prove is a reasonable limit. That proof varies for every client, every industry, and every case. Also, the answer changes for noncompetes related to the sale of a business.

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Can Texas employees get out of a noncompete?

Yes, sometimes. First, employees may negotiate with a former employer regarding the scope of a noncompete. IMcP often represents parties negotiating the scope of a noncompete. It is common for companies and employees to hire their attorneys to reach a compromise (or clarity) regarding the scope of a noncompete. Reasonable minds can find reasonable solutions. Also, buyouts are required for certain physicians and may be reasonable in other circumstances.

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What is the “janitor rule”?

To comply with Texas law, noncompetes must contain reasonable limitations regarding scope of activity. Sometimes, a noncompete will seek to prohibit a former employee from working for a competitor in any capacity. Courts, such as the U.S. Eastern District of Texas in Weber Aircraft LLC v Krishnamurthy, noted that a noncompete was overbroad when it would seek to ban an employee from working in any position, “such as the janitor position.” There are counter-arguments to that same argument.

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What does antitrust have to do with noncompetes?

A noncompete is a legal exception to the Texas Free Enterprise and Antitrust Act. First, that act, at Section 15.05, states “UNLAWFUL PRACTICES. (a) Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.” But that antitrust act includes subchapter E, tilted “Covenants Not to Compete” (the “Noncompete Act”). That Noncompete Act explains, “Notwithstanding Section 15.05 [“Unlawful Practices”] of this code, and subject to any applicable provision of Subsection (b), a covenant not to compete is enforceable if ….” So, noncompetes are not simply a contractual issue – they are an antitrust exception.

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