Working Through Common Employment Law Issues
Non-Compete Agreements in Texas
By Jim Griffis
A common misconception is that non-
compete agreements are unenforce-
able. However, non-compete agree-
ments are alive and well in Texas.
While employees loathe them, employ-
ers often require them as a condition
of employment to protect valuable
business interests. Thus, it is important
for employees to read and understand
proposed non-compete agreements
prior to signing, so they know their
rights and obligations upon termination
of employment. This article provides a
basic overview of certain legal issues
regarding non-compete agreements in
Texas.
Interest Worthy of Protection
In addition to protecting a worthy inter-
est, a non-compete restriction must be
The Texas Business and Commerce
Code sets forth additional require-
ments for physician non-competes. A
non-compete cannot deny a physician
access to a list of patients he or she
treated during the year preceding the
termination of his or her employment.
A non-compete must also allow the
physician access to medical records
of the patients he or she has treated
if authorized by the patient, and any
patient lists and medical records must
be in their native format unless other-
wise agreed to by the physician and
employer. Moreover, a non-compete
agreement cannot prevent a physician
from continuing to treat any patient
with an acute illness. Importantly, a
non-compete agreement must also
allow the physician to buy-out the
non-compete for a reasonable price.
If a physician non-compete does not
contain a buy-out clause, then the
entire non-compete is void and unen-
forceable.
Non-competes in the Context
of the Sale of a Business
Non-compete agreements in the
context of a sale of a business are inter-
preted differently and more liberally
than those in the employment context.
For instance, the duration of a non-
compete can be much longer if a busi-
ness is purchased. One of the reasons
for this more lax interpretation standard
is that non-compete agreements in this
context are not seen as being a restraint
on trade. And, Texas courts frown on
Sellers who violate non-compete agree-
ments because it is not fair for a seller
to solicit customers of, or compete
directly with, the business the purchas-
er acquired from the seller when the
seller agreed not to compete.
This article is for informational purposes only
and not for the purpose of providing legal
advice. You should contact an attorney to
obtain advice with respect to any particular
issue.
Jim Griffis is an attorney with Harris,
Finley & Bogle, P.C. He concentrates
his 15 year legal practice in labor and
employment law. Mr. Griffis represents
both employers and employees in various
labor and employment matters.
Reasonable in Geographic
Area, Duration, and Restricted
Activity
Additional Requirements
for Physician Non-Compete
Agreements
Jim Griffis
A non-compete must be related to an
interest worthy of protection in order
to be valid. Texas courts have deter-
mined certain interests are worthy of
protection. For instance, trade secrets
and confidential information are
interests worthy of protection, and an
employer will often agree to provide an
employee with trade secrets or confi-
dential information in exchange for
the employee agreeing not to disclose
this information. In this context, the
employer must actually provide the
employee access to trade secrets or
confidential information before the
non-compete will become effective.
Some interests are not worthy of
protection. Cash is not, and neither
is a promise of continued employ-
ment. Thus, if an employer merely
promises additional cash or continued
employment in consideration for sign-
ing a non-compete, the non-compete
agreement generally will not be effec-
tive. Under current Texas law, a non-
compete must be designed to protect a
valuable interest held by the employer,
and Texas courts do not allow employ-
ers to end-run the “interest worthy of
protection” rule.
reasonable as to geographic area, dura-
tion and scope of activity. An enforce-
able employee non-compete agreement
is generally limited to the geographic
area where the employee worked.
It should also typically restrict the
employee from performing the same
type of work the employee performed
for the employer. And, the duration
of the restriction cannot be unusually
long.
The reasonableness of a non-
compete is often determined by an
employee’s unique situation. This is
a fact intensive exercise, and a one-
size fits all approach to non-competes
will not work. Employers can get into
trouble by using the same non-compete
agreement form for every employee
because not all employees have the
same responsibilities, and the restric-
tions on one may not be reasonable on
another.
The good news for employers is that
if a non-compete is unreasonable in
scope, courts are supposed to reform
the non-compete to make it reason-
able based on the particular situation.
Reformation, however, can come at a
steep price -- an employer is unable to
recover damages from the employee for
a breach of a non-compete committed
prior to the date of reformation .
11