Changing jobs when you have a non-compete agreement in place can be tricky. Before making a move, plan your exit strategy – set a date, practice your resignation, and be discreet about your plans until the time is right.
If you signed a non-compete agreement, you may also want to consider these questions:
- What should you tell your new employer and when?
- Will starting your own business violate the non-compete?
- Should you address your non-compete agreement with your current employer?
The first step is to contact an attorney who specializes in contract law and non-compete agreements. A non-compete attorney can review your agreement and advise you on its restrictions, its enforceability, and any consequences that may be outlined in the agreement.
It could be that your new employment will not violate the terms of the agreement, or you can work with your new employer to temporarily revise your new role to avoid violating the agreement until the non-compete expires. Alternatively, if your non-compete is overly broad, it may not be enforceable according to Texas law.
To be enforceable in Texas, a non-compete agreement must:
- Be ancillary to an otherwise enforceable agreement, such as an employment agreement;
- Be reasonable in scope of activity;
- Be reasonable in geographic area; and
- Be reasonable in duration / time limits.
If the agreement is overly broad, your employee may still seek to enforce it. However, Texas courts have recognized that overly broad restrictions hurt employees’ prospects and inhibit the free market, and are unlikely to enforce it as written.
Texas Physicians’ Right to Buy Out of a Non-Compete Agreement
Because physician non-compete agreements can impact doctor-patient relationships, Texas law has special requirements above and beyond the elements of a traditional non-compete agreement.
Specifically, physician non-competes must allow doctors:
- Access to a list of patients treated within the year preceding the separation from the practice;
- Reasonable access, upon patient consent, to relevant medical records;
- To provide for patients who need acute care even after the contract or employment has been terminated; and
- To buy out of their agreement, if they choose, at a reasonable price, or, upon mutual consent, for a price set by a neutral third party.
As a result of these special requirements, physicians in Texas have the flexibility to buy out of a non-compete agreement at a reasonable price. And unlike traditional non-competes that prohibit departing employees from retaining client lists, physicians have a legal right to their list of patients (treated over the previous 12 months).
When asked to enforce a physician non-compete, Texas courts will often factor in the public good. For example, if an employer is seeking to restrict a physician’s ability to practice in a geographic area experiencing a shortage of healthcare providers, the courts may rule the agreement overly restrictive.
Disputes may also arise between the physician and employer over what is a “reasonable” price for a buyout – in that event, an arbitrator or mediator may be brought in to set a fair price.
What to Tell Your Current Employer and When
Before telling your current employer that you are resigning, be aware of the restrictions outlined in your non-compete agreement. Get a copy of your agreement and discuss it with a Texas non-compete attorney. Don’t assume your non-compete agreement is unenforceable. These agreements are frequently the cause of lawsuits and should be taken seriously.
Your employer may remind you of your legal obligations to comply with your non-compete agreement in the closing interview; however, there is no reason for you to bring it up proactively.
Leave your current role on good terms – don’t air grievances and don’t leave yourself open to trade secret claims. Promptly return all company property, including your laptop, cell phone, building keys, security badges, etc. Don’t make hard or electronic copies of company files. Uphold your fiduciary duty to serve your current employer’s business interests until your employment ends.
What to Tell Your Prospective Employer and When
Be upfront with prospective employers. During the interview process and before accepting a new position, discuss your non-compete agreement and its restrictions. Depending on the terms, you may need to inform them that you are currently restricted from engaging in certain activities or disclosing confidential information. Your attorney can review your agreement and strategize with you on the best way to approach this discussion.
Non-compete agreements commonly place limitations on the following:
- Where you can work
- The type of work you can do
- The type of information you can disclose about your previous job and/or employer
- Contacting or soliciting customers or clients
- The ability to solicit or hire former co-workers
Being upfront will give your prospective employer the opportunity to review your non-compete agreement with their legal counsel and assess potential risks. Your new employer may decide the non-compete will not restrict your new responsibilities. Or you may be able to negotiate temporary revisions to your proposed role to avoid any violations until the term of the agreement expires.
Starting Your Own Business With a Non-Compete in Place
Some non-compete agreements are unenforceable and will not interfere with your efforts to start your own business. However, if your business idea is in direct violation of a non-compete agreement that is reasonable and likely enforceable, you may need to wait until the non-compete expires or relocate outside of the restricted geographic area to start a successful business without the threat of litigation.
Review the agreement with a non-compete attorney to understand your options, risks, and potential consequences of starting a competing business in violation of the agreement.
What to Do If Your Non-Compete Is Overly Restrictive or Unenforceable?
If you believe your non-compete agreement is too restrictive, review the agreement with a non-compete attorney. State laws dictate non-compete agreements, so be sure to work with an attorney experienced in handling Texas non-compete agreement issues.
Although every non-compete agreement and employer are different, you may be able to raise one of the following defenses:
- Employer breach of contract: Your non-compete agreement must be ancillary, or part of, an otherwise enforceable agreement such as an employment contract. If your employer breached that contract – by not paying your wages or benefits as outlined in the contract, for example – you can argue you that you are no longer required to fulfill your obligations.
- Overly broad scope of restrictions: In Texas, a non-compete agreement must be reasonable in its limitations. If the agreement restricts your activities in the entire state of Texas, for example, when the company’s target market is limited to north Houston, the courts may “reform” or revise the contract to be more reasonable.
- Does not protect a legitimate business interest: For a non-compete to be enforceable in Texas, it must be seen as a reasonable mechanism to protect an employer’s legitimate business interests. This can include a business’ goodwill, trade secrets, and other confidential or proprietary information. If the agreement merely seeks to stop you working for a competitor, the courts are likely to revise or nullify the agreement altogether.
- Does not provide adequate consideration. Non-competes must provide adequate consideration (something of equal or proportional value) to the employee for entering into the agreement. Usually, employment and wages are considered adequate consideration for new employees. If you were asked to sign a non-compete agreement as an existing employee and not given something in exchange, such as a pay raise or promotion, the non-compete may not be enforceable.
If you plan to violate a non-compete agreement, our attorneys can review your agreement, review your options and available defenses, and strategize a way forward.
Is a Federal Non-Compete Ban Coming?
Traditionally, non-compete agreements have been governed by state law. In January 2023, however, the Federal Trade Commission (FTC) proposed a ban on non-compete agreements at the federal level. The proposed rule is open for public commentary through April 19, 2023, and is undergoing further analysis by the FTC. If adopted, it will likely ban any new non-compete agreements and nullify existing ones.
As of the date of this article, however, the rule is not yet final, and it is expected to face significant legal challenges. In the meantime, enforceable non-compete agreements are being upheld in Texas courts.
Dealing with Non-Compete Violations
If you are served with a court order to stop violating a non-compete agreement, take the matter seriously. Seek legal advice. An attorney can pinpoint any loopholes in the non-compete agreement that could serve as your defense and represent you before the courts or in arbitration if necessary.
At Hendershot Cowart P.C., our business and contract law team has decades of experience reviewing the enforceability of non-compete agreements and defending clients against non-compete violation claims. Our law firm is based in Houston but serves clients across Texas. We are available to discuss your situation today, and help you proceed with confidence.
Contact us online to schedule a consultation with our team. We are standing by to help you grow and protect your career.