How Texas Courts handle non-compete lawsuits

Texas non-competeHow non-compete case are described in lawsuits

There is no such thing as a non-compete or non-solicitation lawsuit. These cases are usually described as a breach of a covenant to not compete. It’s a simple breach of contract case, with some parts codified into statutes contained in the Texas Business and Commerce Code.

What Texas Judges tend to do in non-compete and non-solicitation cases

When a Texas judge looks at a lawsuit based on a non-compete or non-solicitation agreement, the court looks at the language of the agreement and determines if the contract is valid or unreasonable. This is one area where good lawyering makes a big impact on the outcome of the case. The judge can reform or change parts of the agreement that are problematic for the promisee or otherwise unenforceable. Once that’s done, the lawsuit proceeds.

Now that we got that out of the way, let’s talk about what the courts can and cannot do.

What Texas Courts can and cannot do in non-compete cases

In non-compete cases, Texas courts can award injunctive relief, award of legal fees and cost. These are they key reliefs often sought by corporations against former employees or partners.

Can a Court award damages against someone who is sued for violating a non-compete?

The answer is yes if the non-compete is not unreasonable. The Texas statute prohibits courts from awarding damages in lawsuits for a breach of a non-compete only if that agreement is not reasonable. If a court finds that a non-compete is unreasonable, then recoveries for damages under Texas Contract law or statutes for attorney’s fees cannot be awarded. On the other hand, if the non-compete is found by the court to be reasonable, then the court can award damages. Under section 15.51 of the Texas Business and Commerce Code a court may award costs and attorneys’ fees incurred by an employee in defending an action to enforce covenants not to compete

What can the court do in a non-compete lawsuit?

If a non-compete agreement is too restrictive, the court can fix (reform) it. This is not optional. It’s in the statute. If the court finds that the non-compete is not enforceable because it is too restrictive, the court must fix it. For example the court can change the non-compete contract (covenant) to add restrictions as to time, geographical area, or scope of activities to be restrained. These changes must be done in a way that is not more than necessary, in order to protect the goodwill or business interest of the promisee of the covenant. After the court fixes the non-compete they can then move forward in enforcing the agreement. The company who filed the non-compete lawsuit will be limited to injunctive relief but no damages for the breach of the agreement before the reformation. Many non-compete lawyers don’t tell the companies that hire them that they cannot recover any damages if the court reforms the agreement and can only offer injunctive relief. Large companies often spend large amount of money on lawyers in the beginnings of non-compete lawsuits. The former employee or partner (the promisor) that gets sued may get injunctive relief placed on them by the court that is very reasonable after reformation with no exposure to any large damage amount. On the contrary, under the right circumstances the court may award the former employee (promisor) reasonable attorney’s fees incurred in defending the action to enforce the non-compete.

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