Non-Compete Agreements in Texas
June 22, 2009
First, lets dispel the myth that non-compete agreements in Texas are invalid - it isn’t true. Employees explain to me time and time again that “Non-compete agreements are not worth the paper they are written on here in Texas.” The Texas Supreme Court disagrees, since 2006 ruling that non-compete agreements ARE enforceable. I believe the Texas Legislature should act immediately to outlaw non-compete agreements for non-owner employees. Why? Non-compete agreements are bad for business.
Scott Kirsner’s piece in the Boston Globe yesterday titled, “Startups stifled by noncompetes” is a great reminder, that while legally valid, non-competes are a bad idea for business. Scott tells a story of a 3D video game artist who had to leave Massachusetts to escape a non-compete. Ironically, the company he escaped to was in Austin and even more competitive to his former employer than the company he wanted to join in Boston.
Theodore Anderson’s article titled, “Is Texas Handcuffed by Employment Non-Compete Resitrictions?” explains,
Texas is not alone in excepting from antitrust laws limited non-compete provisions. But in other states like California, home of Silicon Valley, these contracts are unenforceable. Indeed, it is now conventional wisdom among scholars that non-compete agreements restrict employee mobility and innovation. In 1965, an area called Route 128 in Massachusetts had approximately three times more total technology employment than Silicon Valley. Massachusetts, like Texas, enforces non-competes. By 1975, Silicon Valley tripled Route 128 in technology employment. Scholars blame the non-competes.
Massachusetts lawmakers are considering two bills, one that would eliminate non-competes entirely and another that would limited them to employees making $100,000 a year or more. Scott points out Michigan’s experience with non-competes explaining, “During the decades of that state’s greatest economic growth, from 1915 to 1985, noncompete agreements were illegal.” By 1985 the party had ended and non-competes were allowed and Michigan’s economy has gone into the crapper - of course Michigan has other problems.
Non-compete agreements hurt startups specifically because employees with non-compete agreements are less likely to join a startup than another larger company that might be better able to defend them against litigation from their former employer.
What can you do? First, don’t sign them. Second, if you must sign one - actually find an employment lawyer and have him review it. No really, take the contract to the lawyer and ask him to explain whether or not it is valid and have him suggest potential modifications. Finally, email your state legislator and ask him to pass legislation making non-compete’s illegal in Texas.
