
A big part of my day-to-day includes consulting employees regarding non-compete and non-solicitation agreements that they are considering signing or have already signed. (Note: Please always have a lawyer review such agreements before you sign them, not after. We usually can’t do anything about it if you ask us after!)
What is the difference between a non-compete and a non-solicitation agreement?
A non-compete and non-solicit are both what are called restrictive covenants. Put very simply, a non-compete restricts where you can work, and a non-solicit restricts who you can contact or recruit. They are different types of agreements, but both can exist as different clauses in the same document and often do.
Wasn’t there something in the news that said non-competes were illegal?
Not exactly. In April 2024, the Federal Trade Commission (FTC) issued a new rule that would ban most noncompetes, deeming existing and future noncompetes unenforceable. That rule also would have required employers to notify employees that their noncompete agreements are no longer valid.
However, as you can imagine, this was a very controversial move from the FTC. Litigation challenging the FTC noncompete ban was filed immediately. In Ryan LLC v. FTC, Judge Ada Brown sitting in the Northern District of Texas (which covers Dallas County) blocked the FTC rule. Similarly, a federal court in Florida also blocked the ban. However, a federal court in the Eastern District of Pennsylvania declined to enjoin the rule, stating that the FTC does indeed have competition-related rule making authority.
Are non-competes valid in Texas?
Yes. Texas is a very pro-employer state, and employers can legally propose non-compete agreements to employees. However, that doesn’t mean that there aren’t any limitations—there are.
Only four states have completely banned non-competes altogether: California, Oklahoma, Minnesota, and North Dakota. Other states have placed restrictions on them but don’t quite amount to a total ban, such as the income limits imposed on non-compete agreements in Colorado.
What limitations are there on non-competes in Texas?
The Texas Covenants Not to Compete Act was enacted in 1989 and still governs Texas noncompete law.
For a non-compete to be enforceable in Texas, it must be:
1. Ancillary to an otherwise enforceable agreement at the time the agreement is made. This means that there must be valid consideration in exchange for the employee’s covenant not to compete. This must go beyond continued employment or even a cash payment. Usually, the consideration given is the provision of the company’s “proprietary information,” but it could also be stock options or equity in the company, or even specialized training.
2. Reasonable in time. There is no bright line rule for what is a “reasonable” amount of time—this is a fact-specific inquiry for the court reviewing the noncompete. However, in general, Texas courts uphold non competes ranging from 1-4 years.
3. Reasonable in geographic scope. There is also no bright line rule for this element, and it is a fact-specific inquiry for the court reviewing the agreement. However, a lack of any geographic area mentioned in the agreement at all may very well make it suspect.
4. Reasonable in scope. A non compete cannot amount to an industry-wide ban on practice. For example, if you are a software engineer and you have an agreement that prohibits you from being a software engineer anywhere at all, period, that would likely be an invalid agreement. To be reasonable in scope, the restriction must bear some resemblance to the employee’s job and be limited to a particular segment of the industry.
5. Not impose a greater restraint than necessary. This is yet another fact-specific inquiry. However, agreements that appear merely to be punitive on the employee and intimidate them out of leaving the company are suspect. There must be a legitimate business interest that is being protected by the non compete.
My employer wants me to sign a non-compete. What do I do?
Contact an attorney to review the document first so you know what you’re getting into. Schedule a document review with me in Dallas today or one of my talented colleagues in Houston or Austin, and we will be more than happy to walk you through the document, what it means, and what the law around the agreement is.