This month, our blog series has covered the breakdown of essential employment law and what employers should know when running a business. Our last few blogs have covered classifying employees, the common misconceptions, how to do it correctly, and what the potential dangers and repercussions are if you end up doing it incorrectly. In this blog, we will dive into non-compete clauses, what they are, how they work, and other ways you can protect your business from the competition.
What You Need to Know About Non-Compete Clauses
A restrictive covenant is the law’s fancy name for the agreement between a business and a worker (either an employee or independent contractor), restricting the worker from competing or soliciting the business’s workers or customers. These types of agreements include the more familiar terms of Non-Competition Agreement and Non-Solicitation Agreement.
Texas prefers and encourages competition, so while these agreements are technically enforceable, they must meet extremely specific criteria, or the courts will not enforce them. They must be reasonable as to time, geographical area, and scope of activity restricted. It is the court’s job to perform a balancing act between what will protect a company’s business interests with an individual’s right to earn a living. What this becomes, is an expensive fight over what is “reasonable.”
Stay out of the courtroom
Our job is to keep you out of the courtroom and to save you money, and that starts with education. We have a team of skilled employment law attorneys ready to help.
For example, it would be reasonable for a salesperson to be prohibited from competing in the same territory he previously made sales for with his former company, or if they are selling the same product or services as before. However, a reasonable geographic scope for an upper-level executive could be a more expansive geographic region. In addition, an employer can prohibit a worker from taking clients, customers, employees, and independent contractors from your business when they leave your company. These types of restrictions are called non-solicitation agreements and are subject to the exact three requirements listed above.
The problem we have seen repeatedly is that many businesses use these types of agreements with restrictions far beyond what a court will deem “reasonable.” Rarely have we seen a business and a court agree on what is reasonable. If the court disagrees, as they usually do, your company is not allowed to receive any money but instead only receives a copy of the agreement back from the court with edits to make it meet the court’s definition of reasonable. If these types of cases proceed towards litigation because there has been a breach, they can get costly very quickly. They can be resolved in a few weeks to a few months but can cost $10,000 to $20,000—or even exponentially more—while only giving your company a minimal remedy.
The best practice is to speak with an employment law attorney that knows your business and its operations and can effectively create restrictive covenants which will be found reasonable. Doing so will save your business both time and money while legally giving you the maximum protection allowed under the law. However, these types of agreements are not the only way to protect your business. Even if your employees or workers do not sign one of these agreements, you still have protection in various ways.
Negotiate Better Construction Contracts
At The Cromeens Law Firm, we have extensive knowledge and understanding of construction contract laws and are licensed in Texas, Georgia, and California. We are often able to solve contract disputes for our clients through informal negotiations, mediation, or arbitration. Work with us to equip yourself with the ability to properly evaluate your risks before you sign and negotiate your next subcontract with greater confidence and ease.
Protect Your Business
One way to protect your business is the Texas Uniform Trade Secrets Act or TUTSA for short. This law protects a worker from taking (physically or through mental memorization) and using a trade secret when he or she leaves your company. Many things can be considered a trade secret. The law has listed several that automatically qualify, such as current or potential client/customer lists, pricing lists, supplier lists, methods, and processes, amongst other things.
The second level of protection already built into the law is something called tortious interference with a business contract. The way this plays out is best illustrated through an example: Joe is a salesperson with your company and knows you have a long-standing contractual relationship with supply paint to ACME Painting Pros. Joe then leaves your company and goes to work for a competitor. Next thing you know, ACME Painting Pros stops purchasing paint from you but is now bought from Joe and your competitor.
But if Joe never signed an agreement to prevent him from taking a customer away from you, how can you sue him? The answer is tortious interference with a business contract. Joe knew of your long-standing relationship with ACME and interfered with that contract, causing them to break that relationship with you and instead work with his new employer. Both Joe and his new employer can be held liable, and now you can get money in damages for this violation.
A third additional level of protection for your company is to get your employees to sign confidentiality agreements and to get any independent contractors to sign independent contractor agreements. This would be tailored to your company and each worker’s job position and remind the employee of everything that must be kept confidential. It would also include provisions preventing the solicitation of customers and employees as these are the easiest of the restrictive covenants to enforce. Sometimes, just the reminder to keep things confidential is enough to scare the employee into compliance.
Ensuring your business is properly protected is a challenging task and can sometimes seem overwhelming. Understanding employment law and the part it plays in running a successful company is essential to the health of your business. It is vital to be well-informed and know how to best defend your business in a preventive manner. Call The Cromeens Law Firm and tell us about your business. We want to be your partner in protecting your company and set you up for success. 713-715-7334.
If you’d like more clarification on this subject and would also like to learn about non-compete clauses, the importance of timekeeping, and other employment law-related topics to best protect your business, register today to join us on Wednesday, June 23 at 12:00 PM CST for our Employment Dos and Don’ts webinar with Associate Attorney Kelly Stamy.