March 2017

A Texas non-compete must satisfy two main components to be enforceable. The non-compete has to be ancillary to an otherwise enforceable agreement and be reasonable in time and scope. Before the Texas Supreme Court this week was a case where the court was asked to consider a non-compete without a geographical restriction and consider whether such an agreement was per se unenforceable. I discussed the issue in a recent Law 360 article that you can find here.

My short answer to the question was no on two counts. First, there is no Texas requirement that the geographic restriction appear in the non-compete. Second, it is unlikely the Texas Supreme Court would impose such a requirement. A geographic component is pretty basic. Tell me where I as an employee cannot compete with my former employer. (The same analysis could also impact non-solicitation and anti-raid agreements.) At its essence that could be a lot of things including: (1) cities, states or counties; or (2) a mileage restriction like a 10 mile radius from the employees office.

But sometimes there are agreements that don’t have a specified geography though it is implicit from the agreement itself and it is possible the restriction is nationwide. For instance, an agreement that prevents competition in any state where the employee worked with company customers or a restriction that was tied to a list of competitors. Are these unenforceable because there is no explicit geography?

The defendants in the case before the Texas Supreme Court did some bad things and got caught as they tried to compete with their former employer in the healthcare industry – a psychiatric management company. The non-compete prevented the ex-employee from working for a psychiatric management company that was in direct competition with the employer. No specific geographic restriction, right? But does that matter? Not if the non-compete is “reasonable” according to the Plaintiff and they are probably right.

First, each non-compete requires a case by case analysis. Here the non-compete was limited to 1 year – usually reasonable. Second, the Plaintiff argued the non-compete language was limited to the niche market of psychiatric management and the former employees could still work in other healthcare businesses. The trial court agreed and ruled the non-compete was enforceable.

It would seem unlikely that the Texas Supreme Court impose a bright-line geography requirement in this case. Fist, the non-compete statue requires a case by case analysis so bright-line tests really don’t work. Second, the restriction was limited to a niche market. Third, and finally, the defendants weren’t exactly the most sympathetic defendants based on their conduct.

We’ll monitor the case going forward.