Essentials Of Non-Solicitation Agreements In Texas

What Is A Non-Solicitation Agreement?

Employees may be required to sign non-solicitation contracts when they start a job. Such a contract would be one where the employee in writing agrees to not "solicit" customers, clients and/or employees in the same or related business of their employer. One where the former employee agrees not to "solicit" any employees of his former employer to leave and work for a competitor for a period of time following their last day at work. The duration and scope of such a contract depends on the sophistication and negotiating power of the employer (and employee), and can often be negotiated to protect your rights and interests.
Nonetheless, such a contract (and its entire enforcement) depends on Texas law, and whether it is acceptable under the circumstances for the employer to prevent a former employee from soliciting a customer, client or another employee from leaving its company for a competitor.
Texas law requires that all contracts be reasonable in purpose and not impose constraints greater than are necessary to give the promisee a fair and reasonable protection of his/her/its rights.
The lawful purpose that an employer wants to achieve through this agreement is the prevention of competition, which is a lawful purpose. It can be used to limit the ways in which current and former employees interact with the customers, clients or other employees of the same employer. It also helps to minimize the risk of reliance on or exposure to the ex-employee’s competitive harm. Such a restriction prevents competition from the former employee for the benefit of the employer and the potential enhancement in profits for the employer. Thus, it is a reasonable restraint on the right of the former employee to work for a competing business in the same field, i.e., the employer is entitled to protection from unfair competition.
The reasonableness inquiry is geared toward determining whether there is a legitimate interest sought to be protected and if the means to achieve that interest are not overly harsh on the former employee’s ability to pursue their occupation and therefore violate public policy. Such a restraint must balance the needs of employer to protect a legitimate business interest and employees and potential employees’ right to pursue their profession .
However, the Texas Personal Employment Agreements Act (TPEAA) specifically invalidates against public policy provisions that prohibit former employees from soliciting a customer or client of the employer or their affiliates. While TPEAA contains other provisions prohibiting restrictive covenants against employees, such as: (1) prohibiting new employees from bringing claims; (2) allowing employers to assign older employment contracts to new employers; and (3) allowing employers to require employees to waive the opportunity to be represented by a lawyer in employment disputes, it does not prohibit all restrictive covenants in employment contracts.
Provisions that are reasonable and are in furtherance of a legitimate, business interest of the employer are valid and enforceable. Whether or not such a restraint is reasonable depends on the totality of the circumstances and is determined on a case-by-case basis. There is no "one size fits all." However, the public policy at issue with a violation of a restrictive covenant agreement is the right to freely choose their trade, business, or profession freely, or to move freely from one job to another even where it may impact job security.
Unreasonable prohibitions in an employment contract impacting the right of an employee to pursue his/her profession may involve: attenuated, incidental and indirect restraints that overbroadly limit opportunities after employment ends; restraints affecting a former employee’s freedom to engage in or accept offers of the same or similar employment; restraints that are broader in time, geographic scope or restrictively invasive in communication language or scope than is needed to support the business interests of the company; and restraints that are not carefully tailored to the type and duration of conduct sought to be restrained.
Under the circumstances, a non-solicitation agreement is enforceable against a person or entity that hires an employee whose contract contains the non-solicitation provision if the hiring person or entity had reason to know that the contract contained the non-solicitation agreement. Such a person or company knows or should have known about the non-solicitation agreement simply by reading its terms.

Texas Legal Requirements

In Texas, non-solicitation agreements must be reasonable and narrowly tailored to cover only the employer’s legitimate business interests. Non-solicitation agreements are also subject to statutorily defined limitations that require each agreement to: A Texas non-solicitation agreement will only be enforced to the extent it is what a Texas court deems a reasonable restriction, considering all of the circumstances. When assessing if the restriction is reasonable, courts will compare the public interest in restricting competition to the employer’s legitimate interests. Texas courts will also look at the role the employee played in the company and in the industry as well as the geographic area the employee will be bound by the non-solicitation agreement. These legal requirements for a non-solicitation agreement are a departure from the statutory requirements promulgated by the Uniform Trade Secrets Act, which some states have adopted. This has made many new Texas companies reevaluate the employee restrictive covenants they currently require their employees to sign.

Valid Agreement Elements

For a non-solicitation agreement to be valid, it must contain at least two basic elements. First, it has to contain adequate consideration. For example, if an employee signs the non-solicitation agreement prior to employment, and no other concessions or benefits are offered to the employee, the only consideration stated in the agreement may be access to confidential and proprietary information. Without more, that element is insufficient to support a non-solicitation agreement under Texas law. Conversely, if an employee separation agreement provides severance pay, the standard for consideration is lower than that of an agreement that is entered into at the beginning of an employment relationship. Additionally, if the individual has continued to work for a period of time after the agreement was executed, the company may argue that continued employment is sufficient consideration, albeit marginal. Secondly, the terms of the non-solicitation agreement have to be reasonable. If the customer relationships (and goodwill associated with them) that are to be protected by the non-solicitation agreement are not sufficiently identified, then an information vacuum may be created that provides neither the employee nor the courts with the necessary basis to enforce the agreement.

Common Issues And Challenges

The most common mistake is for the agreement not to prohibit the solicitation of a client that the company has never had a relationship or not even been introduced before. I assume this is done to prevent competition with other competitors, particularly manufacturers. Nevertheless, if the company never had any contact with a client before, it is not a legitimate interest to protect.
The second mistake is defining a "solicitation" too broadly. For example, it may be a violation not to send emails, make phone calls, or meet face-to-face. For instance, a buyer may ask a seller before buying a business whether there are any customers that should not be solicited after closing. Or, the seller of a business may tell the buyer that nothing in his employment agreement prohibits doing business with client A. The agreement could prohibit any contact with a client, even to try to contact them to find out if they even want to purchase anything, or to tell them that anyone in customer service or support can contact them.
A third mistake is simply changing the formal title of a message and relying on that title to avoid violating the non-solicitation agreement. For example, using "introduction," "introduction to accomplish xyz," "introduction request," "new opportunity," or "we have met before." Such a dispute is more difficult for a judge to resolve because a factfinder will have to decide whether the formal title is more important than the actual substance of the particular communication.
A fourth common error is for an employer to assume that a former employee lacks the "clean-room" process. "Clean-room" is where the employee does not bring any information from his old employer. It is his job to determine whether there is anything he can legally do despite the non-solicitation agreement. While it may be fair to rely on a statement from an employee’s attorney when courting a new hire, "the defensive strategy should be reducing exposure by avoiding non-solicitation violations rather than defending them."
The fifth error is that the departing employee assumes that his new employer will not offer him the former’s clients or contacts until he may lawfully contact them. However, until the customers actually have been contacted, that may be where the defendant gets into trouble. After the defendant has purposely contracted with the plaintiff’s customers, the plaintiff can sue the defendant for tortuous interference with his prospective business relations.

Enforcement And Legal Action

In Texas, non-solicitation agreements are generally enforced as long as they are reasonable in scope and duration. However, disputes over non-solicitation agreements can lead to litigation. Typical disputes may include whether the non-solicitation agreement is overly broad, whether it is supported by adequate consideration, or whether the individual signing the agreement had sufficient notice of its terms. Non-solicitation agreements can also run afoul of public policy if they interfere with a person’s right to freely work and earn a living.
The standard of review for judge-made law (i.e., case law) in Texas is abuse of discretion . When it comes to appeals of rulings made by trial judges in non-solicitation disputes, the losing party will often have an uphill battle to show that the trial judge materially erred or abused his or her discretion in enforcing the non-solicitation agreement.
Notably, Texas courts are not required to rewrite an unreasonably restrictive non-solicitation or non-compete agreement in order to enforce some portion of the agreement. Individuals and businesses can and do challenge the applicability of a non-solicitation agreement in Texas by filing motions to invalidate or modify the agreement based on Texas statutes or case law. However, the courts generally review cases for material error. Unless the trial court has made a clear, demonstrable error in interpreting the agreement or applying the law, the ruling will often stand.

Employer Implementation Steps

For a non-solicit agreement to be enforceable under Texas law, it must be ancillary to an otherwise enforceable agreement, and it must contain limitations that are reasonable as to time, geographic area, and scope of activity to be restrained. These guidelines must be followed by an employer seeking to implement a non-solicit agreement in Texas. It is recommended that all provisions of a non-solicit agreement be included in an employment contract or a similar employment-related document at the outset of the employer-employee relationship. In general, doing so will ensure that the non-solicit is an ancillary document to an otherwise enforceable agreement and that the non-solicit provisions will be given independent force and effect. Additionally, including such provisions in an agreement with an employee as soon as possible may allow an employer to later utilize that contract to bind an employee to a non-solicit agreement despite a later time period relating to a resignation or termination from employment.

Non-Solicitation Agreement Alternatives

In Texas, an employer may have several legal avenues in addition to employing a non-solicitation agreement to protect its business interests.
Many businesses take the position that a non-solicitation agreement is the "easiest" and the better way to protect itself from a disgruntled employee. However, there are other legal instruments and strategies businesses may employ to protect their interests such as:
a. a non-competition covenant
b. a non-disclosure agreement
c. trade secrets protections of DTSA and TUTSA
d . the common law doctrine of inevitable disclosure
e. contractual duties owed to the business
Each instrument and strategy outlined above has different protections and imposes different limitations on the parties. Indeed, some of these strategies may be infeasible for certain businesses whereas some businesses may not need to rely solely on a non-solicitation agreement. Therefore, consulting with a qualified employment attorney is crucial to determine which alternative strategies to employ with regard to your business.