Texas Employment and Non Compete Agreements

Employment agreements with a non compete that places limits on former employees’ professional mobility are restraints on trade and are governed by  Chapter 15 of the Texas Business and Commerce Code,  Subchapter E. COVENANTS NOT TO COMPETE  ( the “Act” ).  Employment agreements not to disclose trade secrets and confidential information are not governed by the Act.

The Act sets forth the criteria for the enforceability of Covenants Not to Compete in Texas:

[A] covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it 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 promisee.

There are additional requirements for Physicians:

A covenant not to compete relating to the practice of medicine is enforceable against a person licensed as a physician by the Texas Medical Board if such covenant complies with the following requirements:

(1)  the covenant must:

(A)  not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;

(B)  provide access to medical records of the physician’s patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008, Occupations Code; and

(C)  provide that any access to a list of patients or to patients’ medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;

(2)  the covenant must provide for a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and

(3)  the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.

Non compete agreements were once held to be unenforceable in Texas on the basis that they were in restraint of trade and contrary to public policy.  Later, “people and the courts” came to recognize that “it was in the interest of trade that certain covenants in restraint of trade should be enforced.” Addyston Pipe & Steel Co., 85 F. 271, 280  (6th Cir. 1898), aff’d 175 U.S. 211 (1899).

Recently, the Texas Supreme Court examined Texas Non Compete Agreements subject to the Act in Marsh USA Inc. v. Cook and found that a non competition agreement is enforceable if it is reasonable in time, scope and geography and, as a threshold matter, “if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.” TEX. BUS. & COM. CODE § 15.50(a).  The Supreme Court set forth a two-step inquiry to determine the threshold requirement for enforceability under the Act:

First, a determination is made as to whether there is an “otherwise enforceable agreement” between the parties.

Second, a determination is then made as to whether the covenant is “ancillary to or part of” that agreement.

If these two threshold requirements are met, then the Court looks to whether the non compete is reasonable in time, scope and geography.

When an employee subject to an employment agreement with a non compete leaves an employer, it often results in a contentious situation.  Even though the Texas Supreme Court set forth the guidelines for covenants not to compete, interpretation and application of the guidelines can be difficult. Reasonableness is often in the eye of the beholder and depends on whether you are the Employer or Employee.

If you are in need of a Board Certified Labor and Employment Lawyer in East Texas or local counsel in Gregg County or the Eastern District of Texas,  please contact Michelle JonesJones & Jones, Attorneys at Law, at 888-236-4878 or contact us by email.