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Time Limitations In Non-Compete Agreements

September 30, 2013

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

A noncompetition covenant’s enforceability is ultimately a question of law for the court. Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642, 644 (Tex. 1994). To be enforceable, a noncompetition covenant must: (1) be ancillary to an otherwise enforceable agreement at the time that the agreement is made; and (2) contain limitations of time, geographic area, and scope of activity that are reasonable and that do not impose greater restraint than necessary to protect the company’s goodwill or other business interests. TEX. BUS. & COM. CODE ANN. § 15.50 (Vernon 2002).

We have spent several posts discussing the first requirement. We will now begin discussing the second.

In determining the reasonableness of a noncompetition agreement’s restraints, the court is to consider the restraints “in combination with one another, rather than as stand alone requirements. M-I LLC v. Stelly, 733 F. Supp. 2d 759, 799 (S.D. Tex. 2010).

Regarding time, a non-competition agreement of one or two years is typically reasonable under Texas law, and some courts also find much longer time periods reasonable. See, e.g., Gallagher Healthcare Insurance Services, 312 S.W.3d at 655 (“[t]wo to five years has repeatedly been held as a reasonable time [limitation],”); Stone, 53 S.W.3d at 696 (upholding a five year restraint and stating that “two to five years has repeatedly been held a reasonable time restriction in a non-competition agreement.”) (citing AMF Tuboscope v. McBryde, 618 S.W.2d 105, 108 (Tex. Civ. App.–Corpus Christi 1981, writ ref’d n.r.e.), citing Arevalo v. Velvet Door, Inc., 508 S.W.2d 184 (Tex. Civ. App.–El Paso 1974, writ ref’d n.r.e.); Electronic Data Systems Corp. v. Powell, 508 S.W.2d 137 (Tex. Civ. App.–Dallas 1974, writ ref’d n.r.e.); Weber v. Hesse Envelope Co., 342 S.W.2d 652 (Tex. Civ. App.–Dallas 1960, no writ)).

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