What Is a Covenant Not to Compete?
A Covenant not to compete is a contract wherein an employee agrees not to engage in behavior, either during and/or after employment that constitutes “competition” with the current employer. The term “competition” can be defined in a myriad of ways and is only limited by the parties’ imagination.
Pursuant to the Texas Business & Commerce Code §15.50(a), a covenant not to compete cannot stand on its own and must be ancillary to an otherwise enforceable agreement like an employment agreement that obligates the employee to render personal services.
The scope of a non-compete agreement is usually unique to the industry or individual employer. Some non-compete agreements’ restrictions are local in scope while some are national or even global. Of course, a non-compete agreement cannot be unreasonably limiting as to time or space. There are multiple factors to consider when determining whether a non-compete agreement is enforceable. Some of those factors include: regarding time – whether the employer’s interest need protecting and whether the employer’s interests outweigh the hardships imposed on the employee by enforcing the restriction. Regarding geography – is the geographic limitation reasonable? For limitations on the scope of activity, courts will look at whether the restrictions are related to the employee’s work done for the employer.
To prove a breach of a covenant not to compete, the employer must show that the restraints on time, geography, and scope do not impose a greater restraint than was necessary to protect the employer’s legitimate business interests. If the covenant not to compete is found to be an enforceable agreement, but it imposes a greater restriction than necessary, the covenant is not invalidated, but reformed to make the restraint more reasonable.
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