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A Non-Compete Lesson – Intended Or Not

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I recently settled a temporary injunction case in Houston where the employer sought to shut down a former employee from continuing his competing business, and the company he started was my client. The employee had a two year non-compete agreement. That part was not in dispute by the employee, and he complied with his obligations and did not compete for two years after he left his employment.

During the two year non-compete period, the employer hired the former employee as a consultant to help the employer with different projects. Unbeknownst to the former employee, his “consulting” time was being used against him as the primary basis to get the temporary injunction. How? Well, his non-compete agreement had a clause that basically said his period of employment would continue during the time he was a company consultant.

Imagine if you sat out of the market for two years based on your non-compete agreement and intermittently provided consulting for your former employer. Then, when you set up a new business after the two years and get sued for violating the non-compete, you face this really strange clause that your non-compete time period does not begin to run until the last date of your consulting. In other words, the company could take the position that you can’t compete for two years after the completion of your consulting work for the company–not two years from the date employment was terminated. And in my case, that would have meant the client would have sat out of the market for four years.

Whether the employer intended for that clause to be in the agreement, and if they did, whether they intended it to mean that the clock didn’t run until the end of the consulting period, all begs a bigger question: why would the client have signed something that could be construed in such a draconian manner. The likely answer is that legal advice was not sought at the time of the agreement’s execution. If you are an employer or an employee, whether you want to protect your company’s confidential, proprietary information or whether you want to protect your right to gainful employment in the future, it is critical for you to seek sound legal advice from lawyer who practice business law, commercial law, or employment law. The unintended consequences of terms of non-compete agreements can be drastic.

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