Noncompete agreements: Are their days numbered?
The future is uncertain for noncompete agreements.
Early this year, the Federal Trade Commission proposed a new rule that would ban noncompete agreements in most contexts. The proposal is currently up for public comment, and business and labor interests are lobbying for and against the ban.
At this point, it’s anyone’s guess how the FTC’s final rule will turn out. Still, it does seem that the legal and political landscape for noncompete agreements is changing, making them increasingly unpopular and often unenforceable. Many states have limited their scope and others have completely banned them.
What is a noncompete agreement?
A noncompete agreement is a contract or part of a contract between an employer and an employee in which the employee agrees to not work for one of the employer’s competitors. Typically, these agreements appear as a clause within an employment contract signed by a new employee. In most cases, the agreements are limited to a specific period and geographical area. If a worker violates the agreement, the employer has the right to sue.
Businesses say they need these agreements to protect their trade secrets and their investments in employees. Workers and their advocates despise these agreements because they say they limit workers’ ability to choose the jobs they want.
Tens of millions of American workers are subject to noncompete agreements. While some of these workers are high-level managerial employees with specialized training, knowledge and skills, many or not. In fact, some studies have found that most workers who are subject to noncompete agreements are paid by the hour, and have a $14 per hour median wage.
Some states have attempted to make noncompete agreements more fair by making them enforceable only for highly paid and/or highly skilled employees.
Are noncompetes enforceable in Texas?
Noncompete agreements (or “covenants not to compete”) are enforceable under Texas law under two conditions:
- They must come as part of an agreement that is otherwise enforceable.
- Their limitations must be reasonable as to time, area and scope of duties.
The first condition might be satisfied if the agreement was ancillary to an employment agreement. The second lends itself to interpretation.
In assessing these agreements, Texas courts often note that public policy is to encourage competition, as opposed to limiting it. Therefore, the burden is on the employer to prove that it would be harmed if the court does not enforce the agreement.
Still, many workers cannot afford to go to court to fight if their former employer chooses to take legal action against them for alleged violation of one of these agreements.
Keep up to date
The law changes slowly, but when it does change, it’s crucial for your business to be on the right side of it. Business leaders with questions about noncompete agreements can speak to attorneys who are knowledgeable about the law.