It is common for companies to use non-competition agreements. These contracts are often part of the onboarding of employees, executives, co-owners, and founders or in connection with the exit of key personnel who are also equity owners during an acquisition. Companies must be careful to protect their business interests through every legal means available, but they must also ensure that the restrictive covenant is enforceable.
Poorly drafted non-competes cost money
It is a waste of time and money to take a former colleague to court if the restrictive covenant is ineffective. A business must be careful to avoid these common mistakes that weaken the covenant:
- Except in the case of an acquisition of equity during a buyout, the duration is longer than a year or two, depending on the business’s specialization and the individual’s role.
- The agreement has overly broad geographic restrictions which are unreasonable in the particular situation.
- The scope of the agreement is too broad, making it impossible for the person to find appropriate work.
- In Texas, it must be part of an otherwise binding agreement.
While Texas law does allow non-competes to be enforced in many circumstances, Texas judges are often inclined to allow former employees a right to work and earn a living and to promote fair competition among businesses.
Important points to remember
Many business leaders worry when valuable team members leave, but turnover is a fact of life. Company heads can console themselves by realizing that businesses change over time, adopting new technology and processes, taking on new clients, and adjusting to changes in the market.
These changes are inevitable, often making the former employee’s knowledge of the business dated or obsolete. New laws are drafted, and old ones are amended, so it is best to avoid unreasonable expectations that likely will not last, even if they are currently acceptable.
No two contracts should be the same
The details of each business and its place in the market will vary, so it is essential to work with an attorney who can analyze the client’s needs and draft ta potent non-compete covenant.