Non-Compete Geographic Boundaries

How Is the Geographic Scope of a Non-Compete Determined – in Road Miles or “As the Crow Flies”?

Non-competes are legally binding contracts between employers and employees that prohibit employees from working for a competitor or engaging in competitive activities within a certain geographic area among other restrictions. But how is the geographical scope of a non-compete agreement determined?

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What Is a Reasonable Geographic Scope for a Non-Compete Agreement?

The geographic scope of a non-compete agreement is a critical requirement of an enforceable agreement. Without defining the geographic scope, a Texas court will not enforce the agreement.

Read more about what makes a non-compete enforceable in Texas.

Not only must the geographic scope be defined (among other restrictions), but it must also be reasonable.

What is “reasonable”?

To be reasonable, the geographic restrictions should protect the legitimate business interests of the company, while being no greater than what is necessary to provide that protection. For example, a company doing business solely in the Houston area should not try to restrict an employee from competing within the entire state of Texas.

If the geographic scope is overly restrictive, a court may refuse to enforce the noncompete or may modify the scope to make it more reasonable.

One 2018 Texas court of appeals decision (Fomine v. Barrett) illustrates this point. A case manager signed an employment agreement with a medical practice that included a non-compete provision. That provision barred the employee from competing within a 500-mile radius of the clinic. When the employee was let go and later partnered with two other individuals to open a competing practice within 22 miles of her previous employer, that employer sued. On appeal, the court ruled that a 500-mile radius was unreasonable and therefore the non-compete agreement was unenforceable.

Defining the Geographic Scope of a Non-Compete Agreement

To define and draft a reasonable geographic restriction within a non-compete agreement, consider the employee’s duties and responsibilities and where these duties will be performed.

For example, an employer might want to restrict competition in the geographic area where the employer does business or where it has established – and can document – customer relationships.

If the employee is a sales or service rep for a specific region, you may want to limit the non-compete’s geographical boundaries to that region or sales territory.

If you employ remote employees, make sure the geographic scope applies to the location of their employment activities and not to their remote home office location. Document the duties and data used to define the geographic restriction (such as client locations) in case the agreement ends up in litigation. Consider including a choice-of-law clause if your employees work across state lines since non-compete agreements are currently governed at the state level and vary from state to state.

Learn more about drafting enforceable non-compete agreements for a remote workforce.

Driving Distance or "As the Crow Flies"?

Once a reasonable geographic scope is determined, it must be clearly defined within the language of the noncompete agreement to avoid contract ambiguity.

Some non-compete agreements define the scope of the agreement using existing boundaries such as city limits or county lines. Others may set a radius of miles around a central point, such as a specific job site or the company’s headquarters.

When a dispute hinges on a matter of city blocks or a particular intersection, how the radius or boundaries of a geographical restriction is measured can become critical. There is no court precedent or guideline that defines how miles or radius is measured, so be specific. If you mean road miles, put it in writing. Set a center point for the radius as opposed to asking for an area around a city or county, which does not have an established “center”. Remove ambiguities wherever possible.

Understand Your State's Laws & How They Impact the Enforceability of a Non-Compete Agreement

While non-competes can provide significant protection for an employer's interests, they must be carefully crafted to be enforceable by law. For now, non-compete agreements fall under the purview of state law, and the extent to which they can be legally enforced will vary from state to state.

Work with an experienced Texas business law attorney, like ours at Hendershot Cowart P.C., to develop a non-compete agreement that is both likely to be enforced and protects your legitimate business interests. It is especially vital to consult with an attorney if your Texas-based business crosses state lines or is virtual in nature, as drafting an enforceable non-compete agreement in these instances may be more complex.

Do you have questions about defining the geographic boundaries and limitations of a non-compete agreement? Send us a message online to schedule a consultation. Our Houston-based law firm serves businesses, owners, and executives throughout the state of Texas.

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