Austin TX Business Law Blog

Tuesday, November 22, 2016

Businesses React to Proposed Ban of Non-Compete Agreements

Non-compete agreements are a hallmark of competitive business practice. Oftentimes, employees learn of valuable trade secrets while on the job, and employers have a keen interest in prevent the dissemination of this proprietary information to their competitors. To accomplish this, employees are often asked to sign non-compete agreements upon hire, which prevent the employee from immediately working at a close competitor within a certain geographic area immediately after quitting or facing termination. Non-compete agreements must be reasonable to be enforceable, and an overly-broad, excessively burdensome agreement will be unenforceable. According to certain statistics, as many as one-third of private sector businesses require new hires to sign non-compete agreements,

Now, the Obama Administration has taken aim at the practice, opining that the practice unnecessarily hinders lower-income Americans by preventing them from accessing the few jobs available in their field – particularly if they lack extensive work experience. Lawmakers cite recent headline-grabbing stories involving non-compete agreements with restaurant servers and retail workers, which may be cause for review. However, many industry experts maintain the notion that non-compete agreements actually help boost business and, in the long run, support job growth by ensuring healthy competition continues.

While California has historically taken a stance against enforcing non-compete agreements, the majority of the United States places time and place restraints on these agreements to ensure the terms are not tantamount to slave labor. In Texas, Section 15.50(a) of the Business and Commerce Code addresses the use of these agreements, which are enforceable “to the extent that [the agreement] contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest” of the employer. In general, Texas courts will likely invalidate an agreement not to compete that lasts for longer than one year. The agreement must also be within a “reasonable” geographic area, and must not be greater in scope than is necessary to protect the company’s interests.

Contact an experienced business attorney today!

To learn more about creating an enforceable non-compete agreement for your business, contact the Kumar Law Firm today: 512-960-3808.

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