One of our recent blogs discussed the validity of non-compete clauses in Texas, but there are often complications that can be easily overlooked. Read on to learn about lesser-known complications of non-compete agreements that every employee should be aware of before signing an employment contract in Texas (or elsewhere).
Non-Compete Agreements and Social Media
What if an employee develops contacts for her employer through the use of a social media account like LinkedIn? If she leaves the employer subject to a non-compete agreement, does she breach the agreement by using those LinkedIn connections she made to solicit business for her new employer?
Unsurprisingly, this is a nuanced issue with many fact-dependent potential outcomes. The Texas Supreme Court has held that restrictions preventing employees from soliciting any of the employer’s customers worldwide, including those with whom she had no dealings during her employment, are not reasonably necessary to protect the employer’s business interest of preventing the employee from taking her clients with her to a competitor.
Unsurprisingly, this is a nuanced issue with many fact-dependent potential outcomes. The Texas Supreme Court has held that restrictions preventing employees from soliciting any of the employer’s customers worldwide, including those with whom she had no dealings during her employment, are not reasonably necessary to protect the employer’s business interest of preventing the employee from taking her clients with her to a competitor.
If someone uses social media to solicit new business after leaving a job where they had a non-compete agreement, they may be subject to non-compete complications.
However, when an employer seeks to protects its confidential business information as well as its customer relations, broad non-solicitation restrictions are reasonable. If the employee above has access to proprietary information that she could use to help her new employer, Texas courts may very well uphold a broad non-compete agreement, or non-solicitation agreement, as reasonable.
Even if the employee makes every attempt to avoid actively using the former employer’s confidential information, Texas courts acknowledge the extreme difficulty former employees face in not indirectly applying some of that confidential knowledge in her position with the new employer.
The employee would have to establish enough evidence that she can go into competition in the same market and not use the information she acquired with the former employer to rebut the presumption that the employer suffers irreparable injury from a highly trained employee’s continued breach of a noncompete agreement.
Even if the employee makes every attempt to avoid actively using the former employer’s confidential information, Texas courts acknowledge the extreme difficulty former employees face in not indirectly applying some of that confidential knowledge in her position with the new employer.
The employee would have to establish enough evidence that she can go into competition in the same market and not use the information she acquired with the former employer to rebut the presumption that the employer suffers irreparable injury from a highly trained employee’s continued breach of a noncompete agreement.
Independent contractors can also face complications with non-compete agreements.
What About Independent Contractors and Non-Compete Agreements?
Independent contractors undertake specific work for another using his or her own means and methods without submitting to the control of the other person as to the details of the work. It is not unusual for independent contractors to be subject to non-compete and non-solicitation agreements.
A major benefit to a worker’s status as an independent contractor is the freedom that comes with that classification, so workers may be surprised to learn that they can be restricted from competing with a business they work for as if they were an employee. Thus, an agreement that is enforceable against an employee is enforceable against an independent contractor as well.
A major benefit to a worker’s status as an independent contractor is the freedom that comes with that classification, so workers may be surprised to learn that they can be restricted from competing with a business they work for as if they were an employee. Thus, an agreement that is enforceable against an employee is enforceable against an independent contractor as well.
Both Independent Contractors and Employees should be aware of the "Blue Pencil Rule" in Texas.
What is the "Blue Pencil Rule"?
Judges in Texas often invoke the so-called “blue pencil” rule to make over-broad noncompete clauses enforceable.
In fact, the Texas Business & Commercial Code actually requires courts to reform restrictions if reformation is necessary to make the restrictions enforceable. However, employers are penalized if reformation is necessary, as the Act prohibits the employer from recovering its actual damages, at least until reformation occurs.
The Act also provides that an employee may recover reasonable attorney’s fees in defending against a restrictive covenant if (1) the employee establishes the employer knew at the time the agreement was executed that the agreement was overly broad and (2) the employer seeks to enforce the agreement to a greater extent than is necessary to protect its goodwill or business interest.
In fact, the Texas Business & Commercial Code actually requires courts to reform restrictions if reformation is necessary to make the restrictions enforceable. However, employers are penalized if reformation is necessary, as the Act prohibits the employer from recovering its actual damages, at least until reformation occurs.
The Act also provides that an employee may recover reasonable attorney’s fees in defending against a restrictive covenant if (1) the employee establishes the employer knew at the time the agreement was executed that the agreement was overly broad and (2) the employer seeks to enforce the agreement to a greater extent than is necessary to protect its goodwill or business interest.
There are a lot of lesser-known complications that can arise with non compete agreements. Discuss your non compete with a lawyer before signing to avoid possible future disagreements with an employer.
Defenses Against Non-Compete Agreements in Texas
Even if the noncompete agreement is valid and enforceable, the employee may have defenses under Texas law that would prevent the employer from prevailing in a suit to enforce. The employer may have unclean hands or may not have suffered irreparable harm.
Conclusion
There are many other issues that may arise with noncompete agreements. Employees would be wise to review any noncompete clause and discuss its terms with an experienced attorney.
Do you have questions about a non-compete clause in your employee contract?
Are you facing difficulties due to a previous non-compete agreement?
Are you facing difficulties due to a previous non-compete agreement?
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