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What are non-compete clauses and when should you use them?

Businesses in Houston, and throughout Texas, often include non-compete clauses in their employment contracts, or ask their employees to sign stand-alone covenants not to compete. While these types of contracts can be useful, they are not appropriate for every situation. At The Jackson Law Firm, people frequently ask us about the pros and cons of non-compete agreements. In this post, we will discuss what these contracts are, and when you should use them.

Non-compete agreements are a type of contract clause that prohibits a worker from competing against your company after leaving your employ. When an employee signs these types of contracts, he or she agrees not to work for a competitor, or in a similar trade, for a specific period of time. Typically, the term for covenants not to compete is between 12 and 24 months. For some, however, these periods may be extended.

There are numerous advantages to using non-compete clauses. Perhaps the most significant is that they may help prevent people from using your trade secrets, and other business practices against you. Employees who have signed these types of agreements generally cannot leave your business, and then apply your business advantages and knowledge to their own startups as your competitor. Furthermore, it may prevent your competition from poaching your workers in order to gain access to secret details of your business.

There are some downsides to non-compete agreements. One of the most important for you to understand as an employer is that there are limits on when these clauses are enforceable in the state of Texas. According to the Texas Workforce Commission, among other requirements, covenants not to compete must be a part of, or supporting, agreements that are otherwise enforceable. Additionally, the limitations of non-compete clauses regarding time, scope of activity and geographical area must be reasonable.

Due to the limitations on these types of agreements, you should carefully consider which of your employees should be asked to sign them. This may include those workers who have access to secret or privileged information. Having all of your workers sign non-compete clauses for no specific reason could weaken them, and make it less likely that judges will uphold them if they are called into question.

For more information about handling employment disputes and other business-related matters, please visit our business litigation page.

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