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Covenant Not to Compete

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Companies create and use confidential and trade secret information on a daily basis. Valuable confidential and trade secret information must be kept secure and out of reach of third parties. When dealing with confidential and trade secret information, a prudent practice should be to require each of employee to sign a covenant not to compete.

A covenant not to compete is paragraph or clause in a contract that prevents an employee from working for a company’s competitor or starting a competing business. Generally, covenants not to compete are not Court favorites because Courts are hesitant to prevent people from working for a living. However, covenants not to compete are routinely upheld as enforceable contracts, if they are carefully written.

Enforcing non-compete convenants in Texas

To be enforceable, first a covenant not to compete needs to be a part of another, enforceable contract. Practically, this means that a covenant not to compete should be included in contract where the company promises to giveor does give something of value, such as training or a bonus, to an employee in exchange for the employee’s promise not to compete. For example, a covenant not to compete may be enforced if an employee needs to use confidential information, like client tax information, to perform his work.

Next, the covenant not to compete should be designed to show both that the employer is giving the employee confidential or trade secret information; and that and that the company will try to enforce the agreement. Giving an employee access to confidential information, like a proprietary formula or computer code, shows that a company has an interest in keeping the information confidential and will try to do so.

Finally, a covenant not to compete has to contain limitations as to time, geographical area, and scope of activity that are reasonable. This means that a covenant not to compete cannot keep an employee from working for competitors forever.

Use caution and an attorney, such as Mahendru P.C., when drafting a covenant not to compete or reviewing a covenant not to compete if you are an employee. Like many areas of commercial litigation, the laws supporting covenants not to competediffer and may have many gray areas and pitfalls for the uninitiated. Having an attorney draft a well-supported covenant not to compete can save companies millions of dollars in litigation fees and ultimate hassle.

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