Is Texas Handcuffed by Employment Non-Compete Restrictions?
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.