Drafting Non-Compete Agreements in Texas for Intellectual Property Companies Can Be Difficult

GettyImages-511919460.jpg

Drafting non-compete agreements that will be upheld in court can be a daunting task for intellectual property attorneys. Like many states, Texas law tends to encourage competition and employee mobility. As a result, Texas courts may restrict or even invalidate the enforceability of a non-compete agreement if they find the agreement to be too far reaching in scope. Fortunately, intellectual property attorneys can find solace in the fact that Texas courts generally do permit the enforceability of non-compete agreements when the agreements are drafted to protect specific interests that have been historically deemed worthy or legitimate, such as trade secrets. This is even more particularly relevant with the 2016 ratification of the Defend Trade Secrets Act. With the recent federal recognition of the significance of trade secrets to a business, employers have even more evidence to support their claims of the necessity of including non-compete clauses in employment agreements. This has become particularly relevant in fast-paced environments such as software development.

Still, however, despite the best intentions of legal drafters, Texas courts may still decline to enforce non-compete agreements. Whether they choose to enforce the agreement largely depends on whether the agreement complies with Section 15.50 of the Texas Business and Commerce Code. Section 15.50 states that a non-compete agreement may be found enforceable if the non-compete agreement supplements another agreement that is legally binding. In other words, if the court finds that the non-compete agreement is ancillary to another enforceable agreement, such as a valid employment or non-disclosure agreement, the non-compete agreement may be found enforceable as long as it is also drafted reasonably in terms of scope, duration, and geography.

Due to this, the analysis used to determine whether a non-compete agreement is indeed enforceable is generally fact-driven and will be evaluated on a case-by-case basis. An enforceable agreement is often determined by analyzing the type of work performed by the employee, the availability of access to confidential information given to the employee in question, the geographic area in which the employee performed their duties, and the duration of time in which the employee executed their duties as compared to the amount of time that it takes for the confidential information to be commonly replaced in that particular industry. As such, even if the non-compete agreement is found to be supplemental to another valid legal agreement, a Texas court may still decline to enforce an agreement if the scope of the aforementioned factors is found to be drafted too restrictively. As a result, the court may hold that enforcement of the agreement is contrary to public policy. Moreover, if the court finds that the non-compete agreement was intentionally drafted to be punitive or particularly restrictive, the court may order the employer to pay the employee’s attorney fees.

As such, there is considerable tension in striking the precise balance between drafting an enforceable non-compete agreement that will adequately protect a company’s business interests without being too draconian or restrictive in scope.

For more information on this topic, please visit our Employment, Non-Disclosure & Non-Compete Agreements service page, which is part of our Corporate & Commercial practice.

TexasBarToday_TopTen_Badge_June2016.jpg

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm located in Dallas, TX. The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights. The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution. Additional information about the corporate & commercial law firm and its non-compete agreement attorneys can be found at www.klemchuk.com.

Klemchuk LLP hosts Culture Counts, a blog devoted to the discussion of law firm culture and corporate core values with frequent topics about positive work environment, conscious capitalism, entrepreneurial management, positive workplace culture, workplace productivity, and corporate core values.

Pin it for later: https://www.pinterest.com/pin/315252042649236190/