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Employers: Should You Include a Non-Compete Clause in your Employment Agreements?

Non-compete clauses (also known as “covenants not to compete”) are clauses in employment contracts that stipulate how or when an employee can conduct business after leaving your employment. The purpose of non-competes is to protect a business’ proprietary information, business strategies, and client relationships. Non-competes ensure that even if an employee leaves your organization, you will still be able to maintain your market share and revenue in your region without fear of competiting against the very people you trained.

Employee rights are also protected under non-competes, as only specific and limited clauses are enforceable. Non-competes give a clear and specific set of boundaries that allow your employees to continue their careers with confidence.

Whether you are an employee or an employer, it’s vital to understand why a non-compete is important and how favorable agreements are structured.

Focus on Time, Location, & Clients

All non-competes have three dimensions: a stipulation on geographic area, on the activities prohibited, and how long the covenant lasts. The non-compete has to be specific and limited regarding each one – no employer has the right to limit an individual’s ability to conduct business indefinitely.

For example, Mr. X has left his employer. His non-compete stipulates that he cannot provide a specific operation developed by his employer in the same state for three years following termination of employment. Note that this clause allows him to conduct other activities in the same state immediately, conduct that same operation in another state immediately, or conduct that specific operation in the state three years after his employment contract ends.

The limited nature of the clause protects his employer while leaving the employee, Mr. X, with broad options to earn a living.

What Makes a Non-Compete Agreement Enforceable?

The central issue of any restrictive covenant clause is the enforceability of it (and its “consideration,” or value to both parties). If an agreement is too broad or overreaches to the point of nonsense, a court may not enforce it or alter it. That’s why it behooves every business – especially hospitals whose non-competes are subject to unique restrictions – to have a non-compete attorney review and strengthen their employment contracts. By limiting the non-compete clauses in employment contracts, they ensure stronger protections over trade secrets and market share.

Unique Concerns for Physician Non-Competes

Recognizing the vital service that doctors provide, Texas law has stipulations pertaining specifically to health care providers. Physician non-compete clauses are required to allow doctors the leeway to continue providing care to patients who request it – especially if the patient is acutely ill or requires specialized medicine. These requirements protect both medical professionals and public health, which is why it is vital to consult a lawyer before agreeing to a hospital or medical center employment contract.

The geographic limitations in non-competes would be especially relevant for doctors who live in rural areas. Normal non-compete clauses could force a medical specialist out of the area – thus depriving the region of a vital health service. Ensuring that your employment contract is fully compliant with the Texas Business & Commerce Code is vital for your organization’s success as well as necessary for the public good.

Hendershot Cowart P.C. has spent decades ensuring that employment contracts are fair to both employers and employees. Call (713) 909-7323 let us protect your long-term interests today.

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