Understanding Non-Compete Agreements in Texas
We are all familiar with the concept of sheds without teeth. Shed law assumes that all that is required to show the basis for a particular lawsuit is a factual allegation that satisfies the above. The law is far more complex than this simplistic notion of legal compliance.
Beauty and skincare professionals as well as retail entrepreneurs and/or business owners in the beauty and fashion industry must be aware of the very complex Texas law on non-compete agreements in order to maintain a viable business that remains in full legal compliance. These laws and how they impact our business often determine an upstart’s future in the industry. A starting point is the passage of non-compete agreements that regulate the ability of an employee to compete against a previous employer. Downstream, these agreements decide whether an employee can work for an upstart in the same industry once her employment ends. Non-compete agreements are often part of larger contracts e.g. confidentiality, non-solicitation and/or invention assignments.
Texas requirements regarding enforceability of non-compete agreements are found in Sections 1.2 and 1.3 of the Texas Statues entitled Covenants Not To Compete. To be enforceable, the agreement must satisfy specific conditions including reference to specific limitations of time, geographical area and scope of activity prevented if the restrictions exceed what is necessary. The high-end beauty and skincare industries are rife with agreements like those referenced in Section 1.3 that prevent a worker from working for competitors in the same region. Similar agreements are common in other sectors that are usually covered in restrictive covenants such as Section 4.2 stating that an employee may not accept a position with a competitor for a period of one year after her employment ends. These delineated periods are meant to be valid only if a limited period is in the interest of the employer. If the non-compete clauses are excessively broad however, Texas courts can hold them invalid. Because the facts of every case are specific, beauty and skincare professionals and their employers must consult with experienced legal counsel knowledgeable in the area of restrictive covenants in order to determine their rights and/or legal obligations.
For example, beauty and skincare startup firms face difficulties in obtaining qualified employees because potential hires are afraid of falling afoul of the law and being subject to liability for breach of those agreements. In Texas, a business owner who has been harmed can sue the former employee and perhaps the new employer, as well, when the employee takes trade secrets to the new company. To that end, there have been large punitive awards in Texas against beauty and skincare professionals and business owners who were held to have violated the non-compete agreements that their new employers signed with them. Moreover, recent decisions have applied non-competes to partner-employees in professional firms beyond just senior partners who leave the entity to start their own business. Finally, the downside of an “off the shelf” non-compete contract can limit the growth potential of an upstart.
Examples of businesses that have successfully negotiated the obstacles discussed above include weight loss centers, office supply chains, and beauty schools. There have also been cases where courts have refused to enforce non-compete contracts. This suggests that legally savvy beauty and skincare entrepreneurs who do their homework before going into business are likely to be successful. The following are some general lines of inquiry that can be helpful to beauty and skincare professionals to prepare as they head into this business. Beauty and skincare professionals would therefore be well advised to consult with legal professionals so that contractual agreements can be understood and used to facilitate the growth of their business.
