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The purpose of noncompete agreements

On Behalf of | Sep 24, 2014 | Contract Disputes

On first glance, it may seem unfair to file a lawsuit against a former employee who has left the company to start a similar business of his or her own. However, this type of litigation is meant to protect a company from not only unfair competition, but to prevent against the theft of trade secrets and other matters pertaining to a former insider in the company.

It’s common for many Texas businesses to have employees sign noncompete agreements upon hiring, particularly if the new hire is to have access to critical information relating to the business’s operations, client base and finances. The American Bar Association states that a noncompete agreement can prevent a former employee from misusing information and secrets learned from his or her previous job. Including a noncompete clause in an employment contract is also meant to prevent a former employee from recruiting a company’s valuable employees.

According to Mondaq, noncompete agreements should be supported by adequate consideration, meaning the new hire knows about the agreement ahead of time and will be able to determine if the terms are fair. Some courts and judges will not like to enforce a contract that is too restrictive and prevents people from working. A good noncompete contract should pertain only to areas that the employer has a need to protect, such as client names and company secrets. The agreement’s duration should also not be too long, so a former employee is not entirely restricted from doing business in his or her chosen field. Also, an agreement has a better chance of holding up if the geographic area for competition is not too large.

To protect company interests, it may be a good idea to consult with an attorney and file a temporary restraining order in the event a key employee quits with the intent to start up a similar business.


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