One major hazard that employers in Texas face is that talented employees may take key assets of the employer’s business with them when they quit. This can range from keeping copies of employer forms after quitting, to causing key clients to take their business away from the employer. These risks can be mitigated through a non-competition clause. In Texas, non-competition clauses (1) must be part of an otherwise enforceable agreement, (2) require the employer to have a protectable interest that the clause would protect, and (3) require the employer to give “consideration” for the agreement.
A “protectable interest” is broad; it includes customer goodwill, possession of trade secrets, and specialized training. Texas law does not require the employer’s interest to “give rise to” the non-compete. Marsh United States, Inc. v. Cook, 354 S.W.3d 764, 776–78 (Tex. 2011). Since employers can fire employees at any time, employers must promise more than the job itself to satisfy this requirement. Usually, this means “confidential information” that the employer will provide to the employee during the job. Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 647 (Tex. 2006). The employer can also implicitly promise to provide this information if the employee’s job requires the use of confidential information. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 850–52 (Tex. 2009).
Additionally, employers must give consideration that is designed to enforce the non-compete. Simply asserting that an employee creates “goodwill” generally, or that information is “confidential,” will not meet this requirement. Lazer Spot, Inc. v. Hiring Partners, Inc., 387 S.W.3d 40, 47–49 (Tex. App.—Texarkana 2012, pet. denied). An employee’s ability to access a third party’s confidential information is not sufficient unless the employer (rather than the third party) provides that access. Titan Oil & Gas Consultants, LLC v. Willis, 614 S.W.3d 261, 267–69 (Tex. App.—Texarkana 2020, pet. denied).
If a non-compete clause is enforceable, then the question becomes whether the scope of the non-compete is “reasonable” – that it is as narrow as possible while protecting the employer’s interest. Non-compete clauses are unreasonable if they (1) cover clients an employee never dealt with, (2) would exclude an employee from an entire industry, or (3) lack a limitation both in time and in geographic area. D’Onofrio v. Vacation Pubs., Inc., 888 F.3d 197, 211–12 (5th Cir. 2018); Parker v. Schlumberger Tech. Corp., 475 S.W.3d 914, 928 (Tex. App.—Houston [1st Dist.] 2015, no pet.). Thus, employers cannot stop employees from using general skills and know-how gained on the job using a non-compete clause.
Unreasonable non-compete clauses will be reformed by the courts to become reasonable. Reasonable limitations include geographic limitations to the territory where a former employee actually worked, or the specific boundaries of a franchise. Evan’s World Travel v. Adams, 978 S.W2d 225, 233–34 (Tex. App.—Texarkana 1998, no pet.); Butts Retail, Inc. v. Diversifoods, Inc., 840 S.W.2d 770, 773 – 74 (Tex. App.—Beaumont 1992, no writ). A clause that prevents employees from soliciting all the employer’s existing clients at the time of termination may also be enforceable, depending on the circumstances. EMS USA, Inc. v. Shary, 309 S.W.3d 653, 660 (Tex. App.—Houston [14th Dist.] 2010, no pet.). Time limitations of two to five years are normally reasonable, though longer limits may also be defensible in special cases. Property Tax Assoc., Inc. v. Staffeldt, 800 S.W.2d 349, 350 – 51 (Tex. App.—El Paso 1990, writ denied); Oliver v. Rogers, 976 S.W.2d 792, 800–01 (Tex. App.—Houston [1st Dist. 1998).