Litigation and Restrictive Covenants
Before we talk about Restrictive Covenants, we need to talk about the Hopkins Centrich litigation philosophy:
When you have a serious legal issue that seems destined for a lawsuit, there is one thing you need to hear from your attorneys: “We will tell you the truth even if it’s unpleasant.”
That’s hard for a lot of lawyers to do because the last thing a client wants to hear is, “You don’t have a case,” “It’s time to pull the plug and walk away,” or “It’s not worth the expense just to prove you’re right.”
You need to know because you need to do whatever is best for your business. And to do that you need straight facts.
Hopkins Centrich PLLC gives you the facts . . . along with cutting edge, high quality, creative legal solutions to businesses in The Woodlands and beyond.
Restrictive Covenants in Business Law
Restrictive covenants in business law refer to contractual clauses that restrict a party's ability to engage in certain business activities for a period of time after the termination of the contract. Common types of restrictive covenants include:
Non-compete agreements - Prohibit an employee or seller from working for or starting a competing business for a certain period within a defined geographic territory after leaving the company.
Non-solicitation agreements - These restrict an ex-employee or contractor from soliciting customers, employees, vendors, etc. of their former company for a period of time after leaving.
Non-disclosure agreements - These prohibit disclosure and use of the former employer's confidential information and trade secrets indefinitely or for a set period of time.
Non-dealing agreements - These bar a contractor or franchisee from conducting business with certain partners or suppliers of the hiring company.
Exclusivity agreements - These restrict a distributor or retailer from promoting competitor products for a certain period of time.
Non-circumvention agreements - These prohibit bypassing, avoiding, or going outside a particular channel to reach customers.
The allowable scope and duration of restrictive covenants is governed by state law and public policy concerns. Overly burdensome restrictions face scrutiny when challenged in court.
In Texas, these statutes govern restrictive covenants in a business context:
Texas Business and Commerce Code § 15.50 - Sets out standards for enforceable covenants not to compete in regard to limitations on scope, geography, and time period.
Texas Business and Commerce Code § 15.51 - Provides guidelines on reasonable limitations for non-solicitation agreements.
Texas Business and Commerce Code § 15.52 - Addresses damages that can be recovered for misappropriation of trade secrets.
Texas Business and Commerce Code § 15.05 - Defines what constitutes a trade secret under Texas law..
Texas Business and Commerce Code § 15.51(c) - Specifies certain non-compete limitations that are considered unreasonable restraints of trade.
Texas Business and Commerce Code § 15.52(a) - Allows injunctive relief for actual or threatened misappropriation of trade secrets.
Texas Business and Commerce Code § 15.50(b) - Sets forth requirements for enforceable non-competes connected to the sale of a business.
Please note as well that Common law in Texas also recognizes restrictions such as non-disclosure of confidential information which the statutes do not directly address. In Texas, the statutes strive to balance an employer's interests with public policy favoring employee mobility and free enterprise.
