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Employee Non-Compete Agreements

Texas auto dealers spend a lot of money on developing trade practices relating to inventory acquisition, customer development and retention, lead generation, SEO, email lists, phone lists, and advertising.  What are you doing to protect that information?  Most likely, not enough. While your dealership may spend thousands to train and develop highly trained sales and support staff, are you ready if they walk out the door with your customer list?

Non-compete agreement / Covenant not to compete 

Employment law vary across the Unites States regarding employers placing restrictions on (former) employees working for other employers. These agreements are referred to as covenants not to compete.  In general, Texas courts have upheld the enforcements of these agreements under the following standard: Reasonable.  The agreements must be reasonable in scope and supported by consideration.

Even without a coventant not to compete, a former employee may not steal trade secrets such as customer lists or other proprietary company information.  Both the former employee and their new employer may be subject to theft of trade secret litigation.

TIP: Be learly of new employees that want to hand over data, customer lists, or other sensitive information to you that was obtained from a former employee.  


So what is scope?

Scope can refer to the area in which an employer would like to restrict competition. It is reasonable to limit a former employer from working for a competitor in the same city or metro area.  It is not reasonable to limit a former employee from working in another state or distant city in the same state. 

Scope can also refer to time or duration.  Again it is reasonable to expect a former employee from not working for a competitor in the same city for 6-18 months, but it is not reasonable to limit a former employee from working anywhere for 5-10 years.

Scope of work.  Is the competition restriction based on a similar function.  An employer will not likely be able to limit a former salesperson in auto sales from working in software sales, etc.  Again, there must be a nexus to the former employee's job duties. 

Consideration

For a non-compete agreement to be enforceable, an employer must give an employee something of value in exchange for his or her promise not to compete. Not the promise of a potential job, but something separate.  Money via check may be the most suitable form of consieration for your recordkeeping. If you are updating a prior non-compete, you should probably include some additional considration.  

TIADA is only providing general information and is not offering legal advice. We recommend that you review your employee practices and retain an attorney to update your employee handbook and procedures.

 

 

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