Is Texas Handcuffed by Employment Non-Compete Restrictions?
By Theodore C. Anderson, Managing Director, Kilgore & Kilgore Law

Too often employees come to me with a dilemma. They lost their jobs, accepted modest
one-or-two month severances, and now have job offers from companies in competition
with their former employers. "Do you have a non-compete agreement with your former
employer," I ask. "Yes, but I heard that those non-compete agreements are not worth the
paper they are written on, and besides, it is the only job offer I have," they say. "Sorry,
you heard wrong," I regretfully inform them.

It is a common misconception here in Texas that non-compete agreements are void and
unenforceable. In its most recent case on the subject, the Texas Supreme Court ruled,
that in certain circumstances, non-compete agreements are enforceable.

As a result, although an employee may lose her job, the employer with a non-compete
agreement will prevent her from walking across the street to work for a competitor.
"What happened," you ask, "I thought Texas believed in competition!" The short answer
is that a lot has happened.

In 1989, the Texas Legislature enacted its first covenant-not-to-compete statute for
employees. Texas businesses wanted the statute because it allegedly protected company
techniques, procedures, and customer lists from competitors. It also protected employers
who pay for training employees only to lose the employee to a competitor. However,
subsequent Supreme Court decisions rendered such contracts unenforceable until 2006.
That year the Texas Supreme Court, much maligned after a UT Professor's study
revealed that the Texas Supreme Court decides against individuals 87 percent of the time
in personal injury cases, enforced a non-compete. This changed the landscape.

Now when employees saddled with non-compete agreements walk down the street for
jobs with competitors, their former employers send a team of lawyers into courtrooms to
obtain temporary retraining orders against both the employees and the new employers, to
prevent them from competing. Texas courts routinely grant these restraining orders.

Texas is not alone in excepting from antitrust laws limited non-compete provisions. In
other states like California, home of Silicon Valley, these contracts are unenforceable.
Indeed, it is now conventional wisdom among scholars that non-compete agreements
restrict employee mobility and innovation. In 1965, an area called Route 128 in
Massachusetts had approximately three times more total technology employment than
SiliconValley. Massachusetts, like Texas, enforces non-competes. By 1975, Silicon
Valley tripled Route 128 in technology employment. Scholars blame the non-competes.

As a result, Massachusetts legislators recently introduced a bill making illegal any written
or oral employment agreement that prohibits a person's ability to accept any type of
employment or independent contractor work, for any period of time after an employment
relationship has ended. Violators would be liable for the affected employee's attorney's
fees. Texas should consider enacting the same legislation.

As it now stands, non-compete agreements are often forced upon employees who are at a
substantial bargaining disadvantage. Texas technological leaders, CEOs, politicians, and
courts should realize that non-competes stifle innovation and competition in our state.
Entrepreneurial employees in Texas do not have the same rights as their counterparts in
Silicon Valley. Besides, I am convinced that management treats its employees better if
they are working in a free market.