USA – TEXAS Law and Practice Contributed by: Alana Ackels and Katie Beaird, Bell Nunnally & Martin
Enforcement In enforcement actions, courts scrutinise the reasona - bleness of the time, geography and scope of the activ - ity prohibited in relation to the business interests the company is trying to protect. By way of example, if a salesperson was assigned the Dallas, Fort Worth market as their sales territory, then a non-compete preventing the salesperson from working in Houston would likely be found to be over-broad. However, if a salesperson was assigned all of Texas as their market (and did in fact market and converse with customers across the state), then a non-compete preventing the salesperson from working anywhere in the state would likely be upheld as reasonable. Non-competes should be tailored to the job the employee is performing for the company and the relevant business interests the company is trying to protect. The damages typically available to a business enforc - ing a non-compete include injunctive relief and lost profits that result from the breach. Most non-compete cases focus on enjoining the conduct at issue to pro - tect the business. Reformation If a court finds that a non-compete is over-broad then it must reform and narrow the agreement to make it enforceable. This is called “blue pencilling”. However, if the court has to blue pencil the non-compete, then the party seeking to enforce the non-compete may not recover money damages and is limited to injunc - tive relief. Additionally, if the court finds that the business knows at the time it imposed the non-compete that it was more broad than necessary to protect its business interests, then the court may award the employee their costs and reasonable attorney’s fees incurred in defending the action to enforce the non-compete. Physicians Special rules apply to non-competes governing physi - cians in the State of Texas, as well as dentists, profes - sional and vocational nurses, and physician assistants (hereinafter referred to as “medical professionals”). A covenant not to compete relating to the practice of medicine by medical professionals is only enforceable
impact multiple standard agreements, including typi - cal non-disclosure agreements and severance agree - ments. Those templates should be examined for com - pliance with these new laws. Texas passed sweeping legislation (effective as of September 2021) imposing more stringent sexual har - assment laws on employers in the state. Key changes under the law include: • additional time for employees to bring claims • expanded coverage to any company with one or more employees (previously 15 or more employ - ees); • personal liability for supervisors or managers or anyone else acting directly in the interests of the employer; and • liability if the employer fails to act “immediately” once the employer or its agents knew (or should have known) about the harassment. Please refer to 6.2 Employee Representative Bodies and 7.4 Termination Agreement s for other limitations on non-disparagement and confidentiality clauses set out by the National Labor Relations Board (NRLB). In Texas, non-competes are governed by Section 15.50 of the Texas Business and Commerce Code. Under this provision, 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; • it contains limitations as to the time, geographical area and scope of activity to be restrained; and • the limitations are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the company. Typically, the payment of money cannot form the con - sideration for a non-compete agreement. It must have some special, unique consideration, such as access to confidential information, specialised training, invest - ment of the company’s business goodwill or equity. 2. Restrictive Covenants 2.1 Non-Competes
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