How broad is too broad for a noncompete agreement?
Noncompete agreements can be valid and enforceable in Texas, but they must meet certain requirements first. They must be reasonable in scope, duration, and geographic area. These elements are not defined by statute, but rather, a reasonable scope, duration or geographic area depends on the situation. In one recent case decided by the Court of Appeals for the First District of Texas, prohibiting an employee from working anywhere in the state was too broad.
The case involves a plaster salesman who began working for a Houston-based masonry supplier in October 2007. After working at the company for more than a year, he signed a non-compete agreement which prohibited him from revealing company information or from working for any stucco business anywhere in the state of Texas. If he violated the agreement, the agreement called for liquidated damages of $100 per day.
The plaster salesman’s job was terminated in late December 2009. He then worked as a plaster salesman for another company. In 2012, his previous employer sued the plaster salesman for breaching his noncompete agreement and sought liquidated damages. A district court awarded summary judgment to the plaster salesman on the grounds that the covenant not to compete was overbroad and unenforceable because it covered the entire state of Texas.
The Court of Appeals for the First District of Texas agreed. In a decision issued in May, the court found that the company had the burden to show that it complied with the Covenant Not to Compete Act. It found that the company did not show that compliance. The salesman had testified that the company only did business in Houston, Beaumont, and San Antonio and that he had only handled the Houston and Beaumont areas.
The company provided an affidavit from the company president testifying that the company does business throughout the state and that the salesman had been responsible for sales statewide, but the appellate court rejected that evidence as conclusory. Based on the evidence, the court concluded that it was unreasonable to limit the salesman’s ability to work anywhere in the state of Texas when he had only worked in two cities.
- Our law firm represents businesses and employees in the drafting and litigation of non-compete agreements. For more information, read our page on non-compete violations.