Texas law generally disfavors contracts and arrangements that restrict competition and trade. The Texas Free Enterprise and Antitrust Act of 1983 provides says that “Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.” (Tex. Bus. & Com. Code 15.05(a).)
However, in typical fashion, the Texas Legislature has made certain exceptions to this general rule. Namely, they have made an exception by allowing non-compete agreements to be enforceable in certain limited circumstances: “notwithstanding 15.05 of this code … a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.” (Tex. Bus. & Com. Code 15.50(a)).
Non-Compete Agreements as Restraints on Trade
Covenants not to compete are restraints of trade, and unenforceable as a matter of public policy unless they are reasonable restraints. See John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 85 (Tex.App.-Houston [14th Dist.] 1996, writ denied); see Tex. Bus. & Com.Code Ann. § 15.50(a) (Vernon 2002). A restrictive covenant is unreasonable unless it bears some relation to the activities of the employee. See Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 386–87 (Tex.1991). A covenant not to compete that contains an industry-wide exclusion from subsequent employment is unenforceable. See Stroman, 923 S.W.2d at 85 (citing Haass, 818 S.W.2d at 386–88). Further, a covenant not to compete that extends to clients with whom a salesman had no dealings during his employment is unenforceable. Id. (citing Haass, 818 S.W.2d at 386–88; Daytona Group of Tex., Inc. v. Smith, 800 S.W.2d 285, 288 (Tex.App.-Corpus Christi 1990, writ denied)); see also Hargrave v. Giuffre, 1999 WL 1270783 at *1 (Tex.App.-Beaumont December 30, 1999, no pet.) (not designated for publication) (covenant not to compete not enforceable where it was “not limited to those clients whom [Defendant] serviced or had dealings with while at the agency.”). (Wright v. Sport Supply Group, Inc., 137 S.W.3d 289, 298 (Tex. App.—Beaumont, 2004)).
To Be Enforceable, Non-Competes Must Be Ancillary to, or Part of, an Otherwise Enforceable Agreement
For a covenant not to compete to be ancillary to or part of an otherwise enforceable agreement between employer and employee, as required by statute for covenant to be enforceable, the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer’s interest in restraining the employee from competing, and the covenant must be designed to enforce the employee’s consideration or return promise in the otherwise enforceable agreement. (Marsh USA Inc. v. Cook, 287 S.W.3d 378, (Tex. Ct. App.—Dallas, 2009)). For a covenant not to compete to be “ancillary to or part of” an otherwise enforceable agreement, as would support enforceability of covenant under Covenants Not to Compete Act (CNCA), it must satisfy a two-prong test: (1) the consideration given by the employer in the otherwise enforceable agreement must give rise to the employer’s interest in restraining the employee from competing, and (2) the covenant must be designed to enforce the employee’s consideration or return promise in the otherwise enforceable agreement. (Valley Diagnostic Clinic, P.A. v. Dougherty, 287 S.W.3d 151 (Tex. Ct. App. – Corpus Christi, 2009)).
Texas Non-Compete Agreements Must Be Reasonable In Scope
Under Texas law, the hallmark of enforcement of a non-compete agreement is whether or not the covenant to not compete is reasonable. (Burgess v. Permian Court Reporters, Inc., 864 S.W.2d 725 (Tex. Ct. App.—El Paso, 1993). Noncompete covenant is restraint of trade and unenforceable unless it is reasonable as to limitations of time, geographical area, and scope of activity to be restrained; the covenant cannot impose greater restraint than necessary to protect the goodwill or other business of the promisee. (Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011)).
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Here at Guest and Gray, P.C., we are an experienced litigation team serving all North Texas counties. We are the largest and highest rated law firm in Rockwall and Kaufman County. We regularly pursue and defend various civil litigation claims and personal injury claims. Our practice is quickly growing with offices now located in Dallas, Rockwall and our main office in Forney, Texas to provide convenience to our clients. We are longtime faces in our community and we love what we do. We seek to provide an air of calm and confidence for our clients during a difficult time. We believe that makes us a little bit different from everybody else, and we like it that way.
If you are a party to a non-compete agreement, or are seeking one in the Dallas, Rockwall, or Kaufman counties, or any of the surrounding areas, you need to give us a call today and schedule a free consultation. For more information, give us a call at (972) 564-4644.