Is my Texas non-competition clause too broad?
December 4, 2010 1:21 PM   Subscribe

Help me sign this Texas employment agreement with eyes wide open.

[Please assume that all "YANML" caveats and disclaimers are understood! I have an employment attorney that I can contact if needed. I'm just looking for drive-by thoughts, especially from anyone with legal/HR experience in Texas]

From January-June 2010, I was a strategy and sales consultant to a professional services firm in a niche market, on a monthly retainer. I also performed similar services for other clients in unrelated industries. I was an independent contractor and will get a 1099 for that period.

In June, the CEO of the company wanted 100% of my time, so he made me a full-time offer with a 6-month probation period. We agreed that we would re-visit all terms in December. We did not sign any paperwork in June, but we discussed the biggest pieces clearly and both sides felt that we had an oral contract in good faith. (The CEO and I are civic colleagues and have many shared acquaintances in our tight-knit community. He would not be inclined to jeopardize that goodwill, nor would I.)

Now, we are preparing to execute an actual employment agreement, upon end of the probation period. It is accompanied by a 30% raise, so there is consideration. There is almost no trade secret or proprietary information on the table.

Let me state clearly: I like the job, I trust my employer, and I need the money. Next week, I will be signing this document one way or the other. Sure, I wish I had the luxury of waiting for totally perfect terms where I am covered to my satisfaction and everything will be hunky-dory forever, amen... but alas, it is not so.

What I want to do is make sure I've gathered as much understanding as possible of the thing that is most likely to become contentious down the road: the non-compete clause. So I've reviewed several Texas employment attorney opinions and case studies online, as well as recent cases, and the Texas Supreme Court decision in April 2009 that increased enforceability of non-competition for employers.

I'm okay with the non-solicitation piece, since I would not have interest in poaching staff or calling up existing clients and trying to lure them away. The one place I would be likely to run afoul is that I could feasibly get an offer from an industry affiliate to go to work for them.

The employer is asking me to agree to a 2-year restriction, where the geographic territory is the entire state of Texas (which is indeed our market), and where I will not "Engage in any business in any way similar to or competitive with the business of the Company". There is no language that specifies that I agree not to work in sales, or otherwise that I will refrain from doing the specific job I perform right now. (i.e. if I sign this, I couldn't even go to work as a janitor, in a similar firm)

tl;dr #1   Is it reasonable to sign a 2-year non-compete for the whole state, when I haven't even worked for the company but six months? That really seems quite long to me. I would be willing to challenge this down to one year before I sign it... but if two years is so long as to render the clause overly broad, then maybe the best course is not to challenge that now and risk ill will, if I know I can simply have it "blue penciled" later.

tl;dr #2   Is restricting me from working for another employer who is "in any way similar to or competitive with" too broad, considering Texas precedents? Our industry is complex with multiple layers and levels of service providers and processes. Our firm doesn't have many direct competitors... but "any way similar or competitive" is a big net. If I followed this to the letter, I would effectively have to exit the entire industry. Challenging this part of the document, though, will essentially say to the employer, "Plan to worry about me going to work for someone else." I'd rather not send up those red flags, if I can avoid it and rely on the option of a blue-pencil appeal if things go awry.
posted by anonymous to Law & Government (4 answers total)
I'm in HR. In Texas. I write or revise a lot of employment contracts. Chances are, this was just a standard lawyer wishlist contract and the guy hasn't really thought about it much.

Two years is a long time. I'd tell him that either a 6-month restriction or a restriction on the type of future employers is an absolute must, that you plan to stay with him but if he sells the company or in some way fundamentally alters the relationship and you need to do something else, you need to know that he's got your back.

If he can't save the relationships with clients in six months after you leave, he either has a crappy product or won't have tried.
posted by pomegranate at 1:32 PM on December 4, 2010

//Engage in any business in any way similar to or competitive with the business of the Company//

IANAL. However, I did consult with one here in VA about some non-compete issues a few years ago. I would say that clause would not pass as enforceable in VA. It's way too broad. With a little creativity you could claim in business in the US is in some way competitive with your firm, in the sense that any money spent anywhere else was spent with your firm. And VA is often considered one of the not the most employer friendly states when it comes to any sort of dispute between employer and employee. Also, the 2 year time period might be problematic too.

Again, not a lawyer and all that. But if you are signing it regardless my layman's opinion is that you are not severely handcuffing yourself, except to the extent that the agreement may scare off a potential employer in the future.
posted by COD at 1:33 PM on December 4, 2010

Law student here, so not an actual attorney. Wrote a memo on enforceability of non-competes (in another state, not TX) which taught me enough to know that this is really complicated and you should probably talk to an actual Texas employment attorney about your concerns. A consult should not be too expensive and could save you money in the long-term. Is wouldn't count on something being blue-penciled without this type of advice.
posted by elpea at 2:16 PM on December 4, 2010

Texas employment attorney here with experience drafting/litigating covenants not to compete and other restrictive covenants. Nthing talk to your lawyer.

I do want to note, though, that even if the covenant not to compete is overbroad in scope, time, or geographic area, the court is obliged by the statute to, upon request, reform the covenant's terms so that they are reasonable. This means that it is generally hard to argue that a covenant not to compete is facially invalid unless there's no consideration supporting the covenant and that means it is hard to get rid of the case early in the process (which typically starts with a little or no notice temporary restraining order application). Given the recent caselaw, the only real limitation on the facial enforceability of covenants not to compete is that there needs to be sufficient specialized consideration for the covenant. In practice, this means that the employer must provide either confidential information or specialized training (though not money) to the employee in exchange for the covenant. There used to be arcane rules in the case law as to the timing of the provision of this information and training, but not anymore.

What does this mean? In practice (at least where I practice), covenant not to compete disputes tend to be "won" by the party with the most money to spend, as there isn't an easy way to get a court to get rid of a request for an injunction or damages early on in the process, and as the accelerated timeframe of most covenant not to compete cases can cost many thousands of dollars a week. (And, at least per the statute, there's no effective way to shift costs/fees back to the employer in the case of a crappy suit).

As such, an aggressive employer who can drain a former employee's resources via expedited discovery + depositions will typically win regardless of the merits. This is, in my estimation, the basis for the resolution of 70% of covenant not to compete cases that are actually filed (far far more disputes are never filed, and end with a demand letter and a response saying "hey, we won't compete against you, although we can' t follow 100% of the covenant not to compete).

Now, the courts themselves are actually not too happy about unduly restricting an individual's ability to work, especially with a lower-level employee, and will, in my experience, change the restrictions to more reasonable ones, but it will take a lot of time and money to get to the point.

Also, in Texas, lawyers can use the confidentiality agreement that you're surely signing as a way to get an injunction as easily (or more easily) than a covenant not to compete. This is because confidentiality agreements in Texas have even less requirements for enforceability. Aggressive employers will also typically assert claims against the former employee's new employer, alleging that the new employer is tortiously interfering with the covenant not to compete or is stealing trade secrets. Again, this is often done not so much on the merits, but instead to coerce the employee to comply.

Here are the statutes: 15.50 and 15.51 of the Texas Business & Commerce Code.

Again, talk to your lawyer, and I'm not giving legal advice, but simply noting my own experience in enforcing and defending against covenants not to compete, which, more so than any other area, comes down to whoever has the most money. And I dearly wish that the Texas Supreme Court and the state appellate courts would start pulling in the reins on covenants not to compete, which are way too widely applied and way too broad.

So please take the covenant seriously and talk to your attorney about it.
posted by seventyfour at 8:56 AM on December 5, 2010

« Older New Cell Phone signal better?   |   Posting a video to track down attackers—good idea... Newer »
This thread is closed to new comments.