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As Texas's unemployment drops, non-compete litigation will rise

New economic data indicates that Texas' unemployment rate reached a record low of 3.7 percent. In step with this state-wide trend, economic indicators also predict positive growth for Houston.

Austin, a burgeoning tech hub in Texas, has seen tremendous growth. This is partially why it recently ranked as the second-best city in the United States to find a job. Dallas filled the number one spot.

As technology and other specialized jobs continue to multiply in Texas, the use of non-compete agreements will become more prevalent. Because some workers who are looking to leave their employer may pursue litigation to get out of their non-competition agreement, it is critical for employers to understand what contractual elements will be evaluated to improve their chances of obtaining a successful outcome in court.

The enforceability of non-compete agreements in Texas

The general rule in Texas is that an employer may terminate employment, or the employee can terminate employment for good, bad or no cause at all. Even though Texas is an employment-at-will state, employees may still be held accountable for the agreements they enter at the start of, or during, their employment.

The Texas Business and Commerce Code provides that a non-competition agreement is enforceable if it is:

  • Part of an enforceable agreement
  • Contains reasonable restrictions relating to the geographic, time and scope of activities

While enforcement of non-compete agreements has become considerably easier in the last fifteen years, overzealous employers might find that their particular agreement is subject to reformation.

Will the courts enforce your non-compete agreement?

Judges in Texas evaluate the following criteria to determine whether to enforce or reform a non-competition agreement:

  • Reasonable restrictions: The restrictions within the non-compete agreement must only apply to specific work-related activities and the geographical area where the employee works or meets with customers. Generally, a non-compete agreement should not last for more than two years.
  • Legitimate business interests: The primary business interest, trade secrets and customer relationships are all valid reasons for a company to use non-compete agreements. Industry-wide exclusions will likely be reformed.
  • Sufficient consideration for the worker: Employers must provide some benefits to their workers, including stock options or disclosure of confidential information, to ensure the non-competition agreement is binding.

It is important to note that, while these categories may seem straightforward, ambiguities can and do arise. It is critical to consult with a seasoned litigation attorney who can help you develop an effective legal plan designed to obtain a successful outcome in employment and labor disputes.

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