Restrictive Covenants in Employment Contracts, the Non-Compete Clause and the Non-solicitation Clause

A non-compete clause is a restrictive covenant that prohibits an employee from engaging in a similar business or working for a competitor within a certain geographic area and timeframe. You may find this type of provision in an employment contract or as a separate agreement.

This Employment Scenario Is All Too Familiar But, Could Hurt A Career

You’ve been through a lengthy interview process. You’ve sent thank you notes. And then you finally got the call. You’ve been hired for the position you’ve been wanting. You meet with the hiring manager, business owner, or chief executive officer to sign your employment contract. You check a few key provisions: compensation, benefits, and vacation. You may skip over the non-compete clause because you’re so happy, you begin imagining working for this company without any thought of leaving it.

Life happens. Management changes. Culture shifts. Promises aren’t kept. You decide you must make a move. But what does your employment contract say? It will govern your next move. If you ignore the provisions in your employment contract, you may face liability or worse, a temporary injunction or lawsuit. It’s wise to go into a new job knowing how you will come out of it, if necessary.

Kilgore & Kilgore offers a free review of the facts of your case. If you wish to discuss a non-compete issue in confidence with an employment law attorney, click here Contact Kilgore & Kilgore.

Texas Is A Free Market, Right?

Many people believe that a non-compete clause is unenforceable, but that’s not true in Texas. Since the late 1980s, Texas courts have followed Texas law and enforced the non-compete clause. Read more about this by clicking here Is Texas Handcuffed by Employment Non-compete Restrictions?

Here’s What May Happen If You Ignore Your Non-Compete Clause

A recent case decided in January 2018 by the Court of Appeals of Texas illustrates how courts look at employment contract clauses. In the case of Cochrum v. National Bugmobiles, Inc., Michael Cochrum worked as a pest control technician for National Bugmobiles. Upon being hired in 2004, he signed an employment contract that contained, among other things, non-solicitation and non-competition provisions.

The non-solicitation provision prevented him, after his termination, from soliciting or attempting to solicit business from the company, directly or indirectly, or soliciting or attempting to solicit any person employed by the company to leave Bugmobiles, directly or indirectly. The non-compete clause prevented him from owning or working in a similar business to that of National Bugmobiles, within 75 miles of National Bugmobiles. The non-compete clause also listed specific counties in addition to the 75-mile limitation that were prohibited areas.

Despite the Restrictive Covenants, He Quit

In 2017, Cochrum quit his job at National Bugmobiles and joined Stout Pest Control. Before joining the new company, Mr. Stout asked Cochrum if he had a non-compete clause. Cochrum stated that he did not because one was not referenced in the 2004 employee handbook.

When Cochrum quit, he told his employer that he wanted to retire. He submitted a handwritten resignation letter stating, in part, that he felt it was time to do some personal things in his life. He began working at Stout Pest Control the same day. At the new job, he used his contacts stored on his personal cell phone to reach customers at Bugmobile. By using these contacts, he provided pest control service to 47 former customers of Bugmobile.

Trial Court Imposed a Temporary Injunction

The trial court granted National Bugmobiles a temporary injunction, preventing Cochrum from working in pest control in certain geographic areas, and prohibiting Cochrum from soliciting business from any of National Bugmobiles’ 19,700 customers on its client lists, even though Cochrum had only serviced about 300 customers. This decision was appealed to the Court of Appeals of Texas which upheld the trial court’s ruling, with some important modifications. The Court of Appeals of Texas held that Cochrum was restrained from:

  • owning, controlling, or participating in the ownership or control of, or being employed by or on behalf of, or engaging in any business which is similar to and competitive with Bugmobiles’ business within seventy-five (75) miles of four counties in Texas, which limited the counties defined in the original employment contract;
  • diverting business from Bugmobiles by influencing or attempting to influence customers of Bugmobiles whom Cochrum may have dealt with or who were customers of Bugmobiles;
  • diverting business by soliciting or attempting to solicit the 300 customers of Bugmobiles with whom Cochrum may have dealt with, as opposed to the 19,700 customers ordered by the trial court; and
  • servicing any client that was under contract with or was being serviced by Bugmobiles while employed by any business like and competitive with the business of Bugmobiles.

What Non-Compete and Non-Solicitation Provisions Mean to an Employee with an Employment Contract

Cochrum acted as if he was innocent, but he wasn’t. He intentionally ignored the provisions in his employment contract and went to work for a competitive business on the same day he left the company that employed him for 13 years. Whether he was a skilled, valuable employee, we will never know. But companies depend upon skilled, valuable employees for success and growth. And, they worry that these employees will jump to a competitive business. That’s why non-compete and non-solicitation restrictions exist in employment contracts.

Good to Know When Signing an Employment Contract with A Non-Compete Clause

Non-competes should be limited to a specific timeframe, such as two years. Additionally, they should be limited to a specific geographic area, such as your employer’s county, as opposed to numerous counties where the company you are joining is not yet active. Finally, they should be limited to a particular type of service, such as a certain type of financial sales, for example. Non-compete clauses will often contain language preventing the employee from sharing the employer’s confidential information.

To be enforceable, the non-compete clause must be well-crafted. For example, the restrictions can’t be broader than necessary to protect your employer’s interests. If your employer is in Dallas, the non-compete clause should not prevent you from working in the southwest region of the United States. Additionally, the non-compete clause should not prevent you from working in an area for 10 years. Both of those restrictions are too broad.

Non-compete Clauses in the Courts

The Texas Business and Commerce Code, Section 15.50, sets forth the guidelines that Texas courts enforce. If the non-compete clause is unreasonable, some jurisdictions may strike down the entire employment agreement. Others may require that the employment agreement be redrafted.

Before You Tender a Resignation, Read the Non-compete Clause in your Employment Contract

You should understand what your employment agreement says and doesn’t say. Don’t just read the highlights. Know your rights and restrictions before you leave a job. If you have any questions about your non-compete clause or your employment agreement, click here to find the contact us form on this website. Fill it out and send it in to get the conversation started. Kilgore & Kilgore offers a free review of the facts of your case. Just click here Contact Kilgore & Kilgore.

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