Many employees feel trapped by non-compete agreements, but there are legal ways to handle these restrictive employment agreements.
Before risking legal action by breaking your agreement, consider these alternatives.
Negotiate with Your Former Employer
In Texas, non-compete agreements must have three elements to be enforceable:
- First, they must be part of a valid contract like an employment agreement and provide consideration such as specialized training or access to trade secrets.
- Second, they must contain reasonable limitations on three specific dimensions: the type of work restricted, the length of the restriction, and the geographic territory where restrictions apply.
- Third, these limitations must be no broader than necessary to protect the employer's legitimate business interests.
If you and your attorney agree that any of these requirements are not met, you may be able to negotiate with your employer to modify the terms of the agreement or secure a written waiver of the agreement.
Request a meeting specifically to discuss the agreement and present clear business reasons why modifying the agreement benefits both parties, such as:
- Unreasonable and unenforceable restrictions that are likely to be reformed or nullified in court
- The duration of the agreement extends beyond the shelf-life of any confidential information shared
- Your new work is limited to specific clients or in certain market segments
- Consider offering limited revenue sharing for any business with their clients
- Illustrate that your new role will not threaten their interests
Reaching a negotiated agreement can help you and your employer avoid costly litigation.
Challenge the Non-Compete Agreements in Court
If you are unable to negotiate a compromise with your employer, you can preemptively challenge the non-compete agreement in court.
Grounds for challenging a non-compete agreement in court include:
Unreasonable Restrictions
You and your attorney can argue that:
- Geographic scope of the agreement exceeds the company's market presence
- Duration is longer than needed to protect the employer’s business interests; the typical duration is one to two years
- The activity restricted is broader than the employee's role
- The agreement effectively prevents the employee from earning a living in their chosen profession
If a Texas court deems any of these elements to be broader than necessary to protect the interests of the business, the court can reform or void the agreement.
Lack of Legitimate Business Interest
A successful challenge often begins by demonstrating the absence of legitimate business interests requiring protection. Courts examine whether you had meaningful access to genuine trade secrets or if your skills primarily represent common industry knowledge. If customer relationships pre-dated your employment or you received no specialized training, the agreement may face scrutiny.
Inadequate Consideration
Consideration issues frequently arise when agreements are signed after employment begins without new benefits, when promised consideration never materializes, or when the consideration proves merely nominal. Texas courts examine whether you received genuine value in exchange for accepting competitive restrictions.
Employer's Prior Breach
An employer's material breach of the employment agreement can render a non-compete provision unenforceable under Texas law. The most straightforward breach involves compensation issues: withholding earned wages, failing to pay promised bonuses, or unilaterally reducing agreed-upon compensation without justification. Courts particularly scrutinize cases where employers withhold final paychecks or earned commissions while simultaneously attempting to enforce non-compete restrictions.
Beyond compensation, breaches can arise from violations of other material employment terms. For instance, if an employer promised specific training, resources, or advancement opportunities as consideration for the non-compete but failed to provide them, this could invalidate the agreement.
Industry-Specific Exceptions and Exemptions for Texas Non-Compete Agreements
Depending on your industry, you may have additional grounds to challenge a non-compete agreement in Texas.
Technology Sector:
- Restrictions on software engineers often face higher scrutiny due to the rapid pace of technological evolution. Technical knowledge becomes outdated quickly, weakening arguments for long restriction periods.
- Programming skills, algorithms, and coding patterns are often considered general professional knowledge rather than company-specific trade secrets.
- Many software tools and frameworks are open source, making it difficult to claim proprietary knowledge
Healthcare Industry:
For physicians, non-compete agreements must include several mandatory provisions to be enforceable in Texas. The agreement must provide for a buyout option at a reasonable price, allow access to patient lists and records, and permit continued care for patients with acute illnesses even after departure.
Geographic restrictions for healthcare providers face particular scrutiny in underserved areas. Courts consider factors like patient access to care and the availability of similar specialists in the restricted region. In rural areas or locations with physician shortages, courts may limit or void restrictions that would leave patients without reasonable access to medical care.
Healthcare non-competes must also account for continuity of care requirements under Texas medical regulations. Providers must be permitted to notify patients of their departure and new practice location. Emergency care providers often receive additional exemptions, as public policy favors unrestricted emergency medical services.
Sales and Client Services:
For sales professionals, the line between protectable business interests and general professional skills requires careful analysis. Generic sales techniques and publicly available client information aren't considered trade secrets.
Sales professionals can often successfully challenge non-competes by demonstrating that client relationships are personal rather than corporate assets, especially if they were forged prior to employment.
Financial Services:
The financial services sector faces unique regulatory oversight that can affect non-compete enforcement:
- Investment advisers registered with the SEC must follow fiduciary obligations that can override restrictive covenants.
- FINRA regulations protect registered representatives' ability to take client information when changing firms under the Protocol for Broker Recruiting, which many Texas firms have adopted.
- Compliance officers and risk managers face special considerations due to regulatory reporting obligations. Non-competes cannot prevent these professionals from reporting violations to regulatory authorities or cooperating with investigations.
Seek an Anti-Suit Injunction to Prevent Non-Compete Litigation
Another legal alternative to violating a non-compete agreement in Texas is an anti-suit injunction.
An anti-suit injunction is a court order that prevents a party from going forward with litigation.
If you are a Texas employer wanting to hire an executive or employee restricted by a non-compete agreement, or if you have signed a non-compete agreement and want to reassure your next employer that your position will not violate the non-compete or put the employer in danger of non-compete litigation, an anti-suit injunction may be a viable course of action. The Texas Supreme Court has held that an anti-suit injunction may be appropriate to protect a party from “vexatious or harassing” litigation.
The experienced attorneys at Hendershot Cowart P.C. can review non-compete agreement in question and advise if an anti-suit injunction is the best option for your circumstances.
Other Options to Legally Get Out of a Texas Non-Compete Agreement
Sometimes a technical defect can help you avoid non-compete restrictions:
- Is the agreement missing signatures or dated incorrectly?
- Was the non-compete agreement supporting, or ancillary to, another valid agreement, such as an employment agreement or business sale agreement? A non-compete agreement cannot stand on its own per Texas law.
- Was the agreement signed after your employment started without new consideration, such as additional training or compensation? A promise of future consideration isn't enough.
If you are nearing the end of the term of the restrictions stipulated in your non-compete agreement, you may want to simply wait it out. For example, you can work with your next employer to avoid activities that might violate the non-compete agreement until the agreement expires.
Practical Steps Before Taking Action Against a Non-Compete Agreement
Talk to a lawyer before engaging in any activities that might violate a non-compete agreement. Your lawyer can review the agreement and advise you of its enforceability and any other contributing circumstances. Your attorney will also advise you not to breach your fiduciary duty of loyalty if you are currently employed.
At Hendershot Cowart, our business law attorneys routinely review, draft, defend, and pursue non-compete agreements and non-compete claims. We can meet with you over the phone or in person and quickly advise you of your rights, duties, and obligations. We can also help you understand your options and the potential consequences of a non-compete dispute, and help you decide the best course forward based on your professional and business goals.
