Organizations typically prioritize regulatory compliance and contractual protections to minimize the likelihood of workers bringing lawsuits against the organization. Appropriate contract inclusions are also critical for the protection of a company’s trade secrets and competitive advantages.
Perhaps a growing company about to greenlight groundbreaking new products intends to hire a new marketing director or an engineer. These professionals may have access to nonpublic information about the company’s operations and its plans for the future. Workers might sell trade secrets to competitors or start competing businesses for personal financial gain.
Noncompete and nonsolicitation agreements can play a critical role in protecting a company against unfair competition and the theft of trade secrets.
What is the difference between nonsolicitation and noncompete agreements?
Many business leaders are at least familiar with noncompete or noncompetition agreements. These restrictive covenants prevent workers from starting a competing business or taking a job with a known competitor.
Nonsolicitation agreements prevent workers from attempting to do business with the company’s customers or clients in most cases. They can also prevent attempts to hire former co-workers and subordinates, thereby reducing the pool of talent that helps run the organization.
Are restrictive covenants enforceable in Texas?
Some states have prohibited the use of noncompete and nonsolicitation agreements in employment contracts. Texas has limited the use of these agreements but still allows for their enforcement in appropriate scenarios. Common errors by employers include making these contract inclusions overly broad or too one-sided.
Current best practices in Texas generally require that noncompete and nonsolicitation agreements be subject to reasonable limitations. They should only last for a certain amount of time and may only apply to a specific geographic area. They also typically need to be reasonably necessary for the company’s protection. Additionally, the employee generally needs to receive something of valuable consideration in exchange for signing the agreement.
How do companies enforce restrictive covenants?
Employers who suspect that a current or former employee has violated a noncompetition or nonsolicitation agreement need to document the alleged violation of the agreement. In most cases, litigation is necessary to enforce a restrictive covenant.
Businesses can send cease-and-desist letters to workers, but forcing the cessation of unfair competition or holding the worker responsible for damages typically requires a lawsuit. Disagreements about whether the contract is valid and whether a violation actually occurred also often require the intervention of a judge.
It is of the utmost importance that business leaders relying on nonsolicitation and noncompete agreements ensure that their contracts are thorough and compliant with all applicable laws. Working with the team at Dunham LLP can make it easier to draft protective employment contracts, review contracts when breaches occur and enforce noncompete or nonsolicitation agreements in the wake of employee misconduct.