If you have a remote workforce, chances are you have employees in multiple states. Many of these employees may have access to proprietary information that could damage your business if used in competition against you. Non-compete agreements can protect your business against unfair competition, but every state has its own laws and restrictions for non-compete agreements. As a result, there is no “one-size-fits-all” solution for covering a multi-state workforce with one agreement. But there are solutions.
First, Consider Alternatives to a Non-Compete Agreement
The rules for non-compete agreements vary by state, and remote work complicates jurisdiction. Additionally, bans on non-compete agreements are being considered at the federal level, and some states have restricted, refused to enforce, or banned non-compete agreements entirely.
As such, employers should be strategic and thoughtful about using non-compete agreements and consider alternatives, like non-solicitation agreements, confidentiality agreements, non-disclosure agreements (NDAs), garden leave provisions, or “forfeiture for competition” provisions.
Employers should also take reasonable efforts to maintain the confidentiality of trade secrets, both through company policies and through demonstrable business practices.
If You Do Want a Non-Compete Agreement for Remote Workers, Be Specific
Because work may take place across multiple states, consult with an experienced non-compete attorney to make sure your agreement complies with relevant state law. The laws surrounding non-compete agreements and remote work are still developing, so keep an eye on the trends and revisit your documents regularly.
In Texas, to be enforceable, a non-compete (also known as a covenant not to compete):
- Must be part of another otherwise enforceable agreement; and
- Must contain limitations as to time, geographical area, and scope of activity that are reasonable to protect the business interests or goodwill of the employer.
If you are a Texas employer, consider including a choice-of-law or forum-selection clause specifying that Texas law will govern the agreement or that the agreement will be litigated in Texas courts.
The Texas Supreme Court has concluded that “forum-selection clauses are presumed valid and enforceable unless the opposing party can clearly show that (1) enforcement would be unreasonable or unjust, (2) the clause is invalid for reasons of fraud or overreaching, (3) enforcement would contravene a strong public policy of the forum where the suit was brought, or (4) the selected forum would be seriously inconvenient for trial.”
Additionally, include provisions about teleworking and be specific about what legitimate business interests you are trying to protect – and where those interests are located. Pay close attention to employees who live or work in states with greater restrictions and controls on non-compete agreements and consider drafting non-compete agreements that comply with both Texas law and the state law relevant to your employee.
Review existing non-compete agreements. Are the employees still living and working in the same geographic region as when you entered into the agreement? If not, consider a new or revised agreement and whether new consideration (meaning, are both parties getting or expecting a benefit from new agreement?) will be necessary for the new agreement to be valid.
Which State’s Laws Apply When Enforcing Non-Compete Agreements Across State Lines?
Should a non-compete agreement comply with the laws of the employer’s state, the state where your employee resides, or the state where your employee performs their work? With the rapid rise in remote work due to the COVID-19 pandemic, courts are still working through these issues.
In a 2007 case heard before the Texas Supreme Court (In re AUTONATION, INC. and Auto Imports North, Ltd. d/b/a/ Mercedes-Benz of Houston-North, 228 S.W.3d 663 (Tex. 2007)), the courts declined to get involved in a Florida lawsuit seeking to enforce a non-compete agreement between a Texas employee and a Florida-based company, stating that, “Texas policy which does not require that every non-compete case involving a Texas resident be litigated in our courts.” The lawsuit was filed first in Florida and the agreement included a choice-of-law provision specifying Florida law would govern disputes under the agreement.
The Texas Supreme Court honored the forum-selection clause since the plaintiff employer was not attempting to litigate a purely Texas matter in an unrelated forum: “No Texas precedent compels us to enjoin a party from asking a Florida court to honor the parties' express agreement to litigate a non-compete agreement in Florida, the employer's headquarters and principal place of business.”
In a similar case (DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 679 (Tex. 1990)), however, the Texas Supreme Court refused to enforce a choice-of-law clause providing for Florida law:
“When parties to a contract reside or expect to perform their respective obligations in multiple jurisdictions, they may be uncertain as to what jurisdiction's law will govern construction and enforcement of the contract. To avoid this uncertainty, they may express in their agreement their own choice that the law of a specified jurisdiction apply to their agreement … However, the parties' freedom to choose what jurisdiction's law will apply to their agreement cannot be unlimited. They cannot require that their contract be governed by the law of a jurisdiction which has no relation whatever to them or their agreement.”
The court determined that the relationship of the parties to Texas in that case was clearly more significant than their relationship to Florida and, therefore, “Texas had a materially greater interest than Florida in determining whether the noncompetition agreement was enforceable.”
In this case, the court applied Texas law.
These two cases illustrate the challenges of enforcing non-compete agreements across state lines, even when the intent of the parties is in writing. Texas employers should consult with a knowledgeable attorney on the latest enforcement developments in Texas and in the states where your employees may live and work to develop and maintain enforceable non-compete agreements.
What If My Employee Relocates?
Most non-compete agreements only apply to certain geographic areas, so if your employee relocates after the employment relationship has ended, your non-compete agreement may no longer apply. After all, you cannot restrict an employee from working anywhere in the United States, and most employers do not have specific business interests that can be protected nationwide.
If an employee relocates while they are working for you, you have more control of the situation. You can revisit their non-compete agreement and make sure it applies to their new primary work location before continuing the employment relationship.
Consider requiring employer consent before an employee can change their primary work location. At the very least, make sure workers report such changes, so you can stay on top of the paperwork.
What Are Alternatives to a Non-Compete Agreement to Protect My Interests?
If you believe a non-compete agreement is no longer the best way to protect your business interests in light of a dispersed and remote workforce, you may be correct. Due to telework and legal uncertainty at both the state and federal level, alternatives to non-compete agreements may be more effective in most situations.
Consider these alternatives:
- Have a remote work policy in place that requires employer consent (or at least requires the employee to notify the employer) prior to relocating.
- A nondisclosure agreement (NDA) or confidentiality agreement can protect confidential trade secrets without geographic restrictions.
- Require a non-solicitation agreement to prevent former employees from soliciting clients or other employees.
- Prepare for a high-ranking employee’s exit with garden-leave policies that keep the employee on the payroll but out of the office for a period of time to protect time-sensitive, confidential information.
- Put agreements in place that require forfeiture or claw back certain benefits, such as deferred compensation or incentives, if the employee goes to work for a competitor or opens a competing business.
Hendershot Cowart P.C. Can Help Draft Employment Policies & Agreements That Protect Your Business
Avoiding competition from former employees goes beyond non-compete agreements, especially in the era of telework. Enforceable agreements with certain employees should go hand-in-hand with business policies and practices that protect proprietary information.
Our team at Hendershot Cowart P.C. focuses on helping employers and business owners protect trade secrets, such as client lists, and prevent employee and client poaching.
If you need help drafting or enforcing business and employment agreements, look no further than our firm. We have more than 100 years of collective legal experience and a strong record of results.