As a business owner in Texas you know that sooner or later one of your employees will leave and absent the existence of certain agreements being in place ahead of time, and depending upon your industry, you may find yourself and your business at a competitive disadvantage. While it may seem on the surface that these agreements only benefit the company, they can also provide certain assurances to the former employee and their new employer.
While cases involving departing employees cover multiple issues, the most commonly litigated cases involve confidentiality, non-compete and non-solicitation agreements. As most business owners, especially entrepreneurs, know an overwhelming amount to time, effort, and money goes into creating and maintaining this information. When an employee moves on, or prepares to move on, their willingness to recognize the sensitive nature of this material and the need to safeguard it diminishes greatly.
While there are a number of agreements that should exist between an employer and an employee, the most common forms of agreements that can help with this situation are:
- Confidentiality Agreements
- Non-solicitation Agreements
- Non-compete Agreements
Unlike agreements that focus on trade secrets, Confidentiality Agreements, sometimes referred to as non-disclosure agreements or “NDAs” cover information that may not rise to the level of a trade secret, but is just as valuable to a company. These agreements require employees to recognize and protect all of the confidential information that the employee has access to. These agreements define what the company regards as confidential information, and confirms the employee’s understanding of what that information is and receives the employee’s promise to not disclose such information. If drafted properly, such agreements are broadly enforced in Texas.
Non-solicitation agreements primarily fall into two categories:
a) the non-solicitation of employees; and,
b) the non-solicitation of clients.
Non-solicitation of employee agreements essentially restrict the departing employee’s ability to recruit co-workers to join them at their new employer. While there is a split of authority as to whether or not these types of agreements are governed by the Texas Covenant Not to Compete Act, such a split does not exist as to their general enforceability
Similarly, Non-solicitation of client agreements restrict the ability of the former employee to bring along any clients that were doing business with their former employer and not the new one. While advocates argue that agreements not to solicit clients are not governed by the Texas Covenant Not to Compete Act; recent case law holds otherwise.
These agreements, as their name implies, fall squarely within the requirements of the Texas Covenant Not to Compete Act. So, even though these agreements seem like unlawful restraints on trade, provided they meet they meet the requirements of the Act, they will be enforced.
As a preliminary matter, the Act provides that a non-compete agreement is enforceable only: “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 good will or other business interest of the promise.”
As can be imagined, whether or not an agreement is reasonable as to the “geographical area” specified as well as any time limitations, is the subject of much litigation and debate. Unfortunately, because of the fact intensive nature that such an examination requires, it is not possible to rely upon simple generalities when dealing with such restrictions. For example: an agreement prohibiting a regional director, who oversaw operations in multiple states, from working within that same multi-state region could be considered reasonable while a similar restriction being imposed upon a salesman that only worked in a few counties would be considered unreasonable. Likewise, a time restriction of multiple years being placed upon an engineer involved with research and development of medical devices may be reasonable, such a restriction being imposed upon a salesman could be considered excessive.
Because a departing employee involves matters of incredible business significance to you and your clients, it is important that a well-designed and consistently implemented plan exist. Trying to address this situation after an employee gives notice, is like closing the barn door after the cow has left. Having solid agreements, coupled with a well thought out policy and plan to address these situations, is essential for any business’s continued success.
If you are in need of counsel regarding such matters then please contact me today.