Scope of Activity Restrictions in Texas Non-Compete Agreements

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 reasonable restriction on scope of activity can substitute for a geographic restriction, even absent a geographic restriction – for example, limiting the employee from contacting customers he or she had contact with during a reasonable time frame before he or she left his or her employer is generally reasonable and enforceable. See, e.g., Sheshunoff, 209 S.W.3d at 657 (holding covenant prohibiting employee from soliciting or providing services to employer’s clients for period of one year following termination reasonable); Gallagher Healthcare Ins. Services, 312 S.W.3d at 654-55 (restraints tied to employee’s own work at the prior employer are reasonable); Drummond American, LLC v. Share Corp., 692 F. Supp. 2d 650 (E.D. Tex. 2010) (enforcing restriction prohibiting employees from calling on any customer of theirs from whom they solicited orders or to whom they sold competitive products on behalf of the company during the last year of their employment for a period of two years following termination of their employment).

On the other hand, extremely broad restraints likely are unenforceable. See Weatherford Oil Tool Co. v. Campbell, 340 S.W.2d 950, 951-52 (Tex. 1960) (geographic scope described as “any area where Weatherford Oil Tool Company, Inc., may be operating or carrying on business” held overbroad); McNeilus Companies, Inc. v. Sams, 971 S.W.2d 507, 511 (Tex. App.–Dallas 1997, no writ) (holding covenant prohibition on former employee from working “in any capacity” for competitor of former employer was overbroad in scope); Recon Exploration, Inc. v. Hodges, 798 S.W.2d 848, 853 (Tex. App.–Dallas 1990, no writ) (non-competition covenant prohibiting employment in any business of type and character engaged in and competitive with former employer presented question of reasonableness); cf. Butler v. Arrow Mirror & Glass, Inc., 51 S.W.3d 787 (Tex. App.–Houston [1st Dist.] 2001, no pet.) (“Restraints are ‘easier to justify if . . . limited to one field of activity among many that are available to the employee’”).

Tomorrow, we will discuss these issues and sales employees.