Can You Enforce a Non-Compete Agreement After Its Expiration Date?
To be enforceable, non-compete agreements in Texas must be reasonable and specific with regards to geographic area, the scope of activities, and the duration (i.e. how long the restriction lasts). A typical duration for non-competes in Texas is somewhere between six months and two years.
What happens if a former employee was violating the non-compete agreement within the restricted period, but you only uncovered these activities at or near the end of that term?
On This Page
- Enforcing an Expired (or Almost Expired) Non-Compete Agreement
- How Are Non-Compete Agreements Enforced in Texas?
- How Can You Protect Your Business After a Non-Compete Expires?
- Can a Non-Compete Agreement Be Extended?
- Remember: Protecting Your Business From Non-Compete Violations Is Your Responsibility
- Act Swiftly to Enforce Non-Compete Agreements
If the agreement is still active and within the specified time period, act quickly. Ask the courts to intervene before the agreement expires. By acting quickly, you also demonstrate to the courts that you are ready and willing to vigorously defend your business interests. Otherwise, the courts may question whether those interests were truly legitimate.
If the contract has expired, the courts cannot extend the duration of the non-compete agreement unless you included a specific provision, called a tolling clause, in the agreement. A tolling clause extends the non-compete by the period during which the employee was in breach.
Even without a tolling clause, however, there may be options to stop harmful competitive activity.
To understand the challenges of enforcing a non-compete agreement after its term is expired, you must first understand how non-compete agreements are enforced.
Most non-competes are enforced through injunctive relief and damages. This means that you and your attorney can seek a temporary restraining order (TRO) and then a preliminary injunction to stop the prohibited activity. At the preliminary injunction stage, you and your attorney may then present evidence of the harm done to your business and seek to recover financial damages suffered as a result of the violation.
Enforcing a non-compete retroactively is challenging because courts cannot order a stop to restricted activities that happened in the past and are no longer prohibited by the non-compete. However, if a former employee continues to violate the terms of a non-compete while the matter is being litigated, the court may extend the injunction past the agreement's expiration date, especially if the violations were “continuous and persistent”.
Generally, your former employees are free to compete with you once the term specified in the non-compete expires. Still, there are other legal grounds that may protect your business:
- Confidentiality agreements, also known as non-disclosure agreements, protect confidential information and generally do not have a time limit. If your former employee signed a confidentiality agreement and is sharing or using that proprietary information without your consent, you may have a cause for legal action.
- If your former employee is misappropriating or disclosing your trade secrets, you may be protected by the Texas Uniform Trade Secrets Act, or TUTSA. TUTSA creates remedies, including injunctive relief and civil liability, when trade secrets have been stolen or misappropriated. Seeking legal remedies under TUTSA does not require the existence of a valid contract or agreement. It does however require IP owners to prove their trade secrets are valuable and that they took “reasonable” measures to protect those trade secrets.
Texas courts are reluctant to extend a non-compete agreement's duration. One exception may be if the original agreement included a tolling provision. A tolling provision automatically extends the non-compete agreement's term by the same period that the employee violated the agreement or during litigation. The theory is that this allows the employer to realize the full benefits of term of the agreement.
Tolling provisions to a non-compete clause must be drafted carefully, however, to ensure the agreement is still enforceable.
If you have your employees sign non-competes, pay attention to whether they are honoring their agreements. Texas business owners, executives, and HR professionals have a responsibility to protect their companies, and all employers must diligently pursue their legal rights.
After all, non-competes exist to protect your business from specific competition for a specific period, and if your business did not suffer enough to inspire litigation or other legal action during the term of the agreement, the court is unlikely to extend it.
If you suspect a former employee is competing against you unfairly, consult with a lawyer about your options. Don't wait to see if the prohibited activity becomes a regular occurrence. Act now to preserve your rights.
Hendershot Cowart P.C. can help you protect your business from non-compete violations. Our attorneys have over 100 years of collective legal experience and a strong record of results.
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