So your business is in Texas and your Texas lawyer drafted a
non-compete agreement that all employees with access to
confidential information are required to sign. You are pleased with
this agreement because the few who attempted to jump ship and
compete were stopped in their tracks when your lawyer took them to
court. The word is out – you mean business and will go to
court to enforce your non-compete agreements.
But now your business has grown and you have employees working in
other states, all of whom are required to sign your
"airtight" non-compete. That raises an issue you may not
have considered - will your non-compete agreement stop these out of
state employees from leaving, competing and taking your customers
with them? Maybe - maybe not.
One of the biggest concerns is figuring out which law applies to
the enforcement of your non-compete agreement. Of course your
non-compete agreement has a choice of law provision which states
that the agreement will be interpreted and enforced pursuant to
Texas law. However, that provision may not hold up in another state
since some states will only enforce non-compete agreements under
their own laws, regardless of your agreement's choice of law
provision. In other words, the enforceability of your non-compete
agreement may hinge on where the employee works rather than the
employer's headquarters or the choice of law provision.
A good example of why this matters is in the situation in which
you terminate an employee without cause. While your non-compete
will likely be enforceable in Texas, other states will not enforce
non-compete provisions against an employee who was terminated by
the employer. Still other states may require an examination of
whether the termination was conducted arbitrarily or in bad faith.
Then there are a few states that have legislation prohibiting
non-compete agreements altogether.
The bottom line is that a "one size fits all"
non-compete agreement is ill advised in a national and/or global
market. While the law varies from jurisdiction to jurisdiction, a
separate non-compete agreement for each state is not necessary, but
it is extremely important to know the jurisdictional differences
and to customize your non-compete to address those differences both
in the contractual language and how and when it is presented to the
employee. Therefore, getting sound legal advice on the
enforceability of your non-compete agreement – before you
present it to the employee – will likely save you time and
money in the end.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.