Ask the Law Mother: Is a Non-Compete Agreement Enforceable?

A question from Manuel in Frisco:

“I’ve been a car salesman for 20 years. I recently switched dealerships. It was too good of an opportunity to pass up. I got a letter in the mail from a lawyer representing the dealership I used to work for. They are claiming I am working for a competing business in violation of the non-compete agreement I signed and are threatening to sue me if I don’t immediately quit my new job. Can they do this? I don’t even remember signing a non-compete agreement.”

Take a deep breath Manuel and let’s work through this.

First things first. What’s a non-compete agreement? A non-compete agreement usually covers three areas:

Non-Compete: you agree that you won’t go work for a competitor after you leave the company.
Non-Solicitation: you agree you won’t approach company customers or poach company employees after you leave the company.
Confidentiality: you agree not to use or reveal the company’s proprietary information (e.g., client lists).

Are these types of agreements enforceable? It depends on the state. In Texas, for example, non-compete agreements are enforceable if they are part of another agreement and are reasonable in duration, activity restrained, and geographic scope.

Have I confused you yet?

Let me bottom-line this for you. Non-competes are a tricky area of the law. Some are enforceable and some are not. Sometimes a ceases and desist letter like the one Manuel got is an empty threat, or the company hired a lawyer that doesn’t understand non-compete law. And sometimes it’s not and the company hired a lawyer who really knows her stuff.

You just don’t know.

So if you are asked to sign a non-compete agreement or if you have gotten a nasty “cease-and-desist” letter in the mail from your former employer, spend the money and hire an employment lawyer (one who specializes in employees) to review the non-compete agreement and, in the case of a ceases-and-desist letter, write a letter to your former employer.

Back to Manuel’s question. I don’t have a copy of the agreement or the letter he received so I can’t offer an opinion on either one of them. But I can talk about some of the ways you can fight a non-compete agreement.

No agreement was ever signed. I call this one the “Duh” defense. If like Manuel you don’t remember ever signing a non-compete agreement, ask your former employer if they have a copy of the signed agreement. Don’t just assume that just because they fired off a nasty letter to you that they actually have a valid agreement.
The scope of the restrictions are too broad. As I mentioned above, in Texas, the restrictions have to be reasonable in time, activity, and geography. For example, if Manuel’s non-compete agreement prohibited him from working at car dealerships in Texas, New Mexico, Oklahoma, Arkansas, and Louisiana, a court would probably determine that’s unreasonable.
Your old employer breached the agreement. Did your old employer breach the agreement? Fail to pay you all the money that was due to you (e.g., wages, commissions, bonuses)? If so, the agreement may not be enforceable.
Your old employer is a crook. Did your old employer ask you to do something illegal or be dishonest with its customers? If so, you can challenge the non-compete agreement.
Your old employer doesn’t have a legitimate business interest. Non-compete agreements are supposed to protect company trade secrets and proprietary information. If you signed the agreement as part of a standard procedure for all employees or if you didn’t have access to this kind of information, you could make a case that the non-compete shouldn’t be enforced.

Good luck Manuel. Please let me know how your situation works out.

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