Non-compete agreements protect employers from losing valuable trade secrets, customer contacts, and other forms of intellectual property. A trade secret is information that confers an economic benefit to a business because it is not generally known or readily learned by others. (See Trade Secret White Paper) When an employee, who has obtained trade secrets during employment, quits or is fired, he/she could use this confidential information to compete with his/her former employer. The employee might start working for a competitor or open a competing business, and gain an unfair advantage by abusing confidential information about their former company’s business operations, trade secrets, client lists, or marketing strategies. A properly drafted non-compete agreement can help prevent this from occurring and provide an employer with additional legal remedies.
In a non-compete agreement, the employer agrees to provide specialized training or divulge confidential and proprietary information to the employee. In return, the employee typically promises not to work for a competitor for a certain time period, recruit employees, service or solicit the former employer’s clients, disclose or use the confidential information during and after employment.
Originally, non-compete agreements were disfavored as unlawful restraints on trade. Courts focused on the importance of a free market in our capitalistic economy. Our legal system highly values a person’s right to earn a living. However, the law recognizes that an employer’s interests may warrant restrictions on post-employment competition.
In October 2006, the Texas Supreme Court’s Sheshunoff v. Johnson ruling clarified the law on non-compete agreements, enabling more companies to successfully enforce their non-compete clauses. The ruling shifts the focus from the formation of the contract to the reasonableness and necessity of the restriction. The non-compete clause is only enforceable to the extent necessary to protect the legitimate business concerns of the employers. The core inquiry should be on the reasonableness of the length of time, geographical scope, and activity to be restrained set forth in the non-compete clause.
If you are interested in additional information on the topic of non-compete agreements, or if you have any questions, please contact a K&K attorney. K&K offers an array of services in the areas of intellectual property including patents, trademarks, copyrights, trade secrets as well as intellectual property litigation and enforcement. Further information on these and other services is available at www.kk-llp.com.