Are Non-Compete Agreements in Texas Enforceable If the Employee Is Fired or Laid Off?

Employees who sign a non-compete as a part of their employment contract may face legal action from their employer if they violate the agreement. However, what happens if an employee is fired or laid off?

What Makes a Non-Compete Agreement Enforceable in Texas?

The enforcement of non-compete agreements depends upon numerous factors. A non-compete will be subject to strict scrutiny by the courts when an employer seeks to enforce the non-compete. The agreement must be carefully drafted – ideally by a knowledgeable Texas non-compete attorney – and the employer will need to be prepared to justify the reasons for the non-compete and the restrictions imposed by the non-compete.

For a non-compete to be enforceable in Texas:

• It must be ancillary to, or part of, an otherwise enforceable agreement; and
• It must contain limitations as to the period that the restrictions will apply, the geographic area to be covered by the non-compete, and the scope of activity.

Each of these restrictions must be reasonable and not imposed by any greater restraint that is necessary to protect the business interest or "goodwill" of the employer.

As an employee, you must be very cautious about signing non-competes, as it may potentially prevent you from taking other similar employment within the restricted area during the restricted period.

In addition to the requirements set forth above, physician non-compete agreements have additional requirements that make them more difficult to enforce. Among the additional requirements, a doctor must be given the ability to buy out of the non-compete, must be given access to certain patient records, and must not be prohibited from treating a patient during an acute illness.

Does a Non-Compete Agreement Apply in a Lay-off or Termination?

In Texas, there is no requirement that the employee must leave on their own terms to preserve the enforceability of the non-compete agreement. In other words, a non-compete agreement remains in force whether the employee quit, was fired, or laid off.

However, the reason for termination can be a factor when seeking to enforce a non-compete. A judge may question the reasonableness of the non-compete agreement if an employee was not critical enough to remain on the payroll. Texas’ non-compete laws require that restrictions on the employee “do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.” (Tex. Bus. & Com. Code § 15.50(a)). The court will seek to protect the employer’s business interests without placing unreasonable restrictions on the employee’s ability to make a living.

How Hendershot Cowart P.C. Can Help

Since the enforceability of a non-compete is reviewed on a case-by-case basis, it is beneficial to consult with an attorney who is skilled in the area of non-competes to gain specific advice about your agreement.

Hendershot Cowart P.C. has assisted countless clients with their non-compete agreement disputes. Our team of legal professionals can help you defend your right to work or protect your rights as an employer. We have extensive experience with non-compete agreements and other business law matters.

Contact Hendershot Cowart P.C. for more information by calling (713) 783-3110 today.