A non-compete dispute in a business deal is a fight over whether a seller, departing owner or business partner must keep a promise not to compete, solicit customers or use confidential information. Texas generally enforces these covenants when they are part of an otherwise enforceable agreement and reasonable in length, geographic area and scope of activity.
We handle covenants that come from the sale of a business, an owner's exit or buyout, and agreements between businesses such as vendors, distributors and partners. We don't handle employee non-competes or other employment disputes. For the deal side, see selling a business and partner buyouts.
A seller's promise not to compete with the business the buyer paid for.
Restrictions a departing partner, member or shareholder accepted in a buyout.
Non-compete and non-solicitation terms in vendor, distributor and partner agreements.
Promises not to pursue customers or use confidential information.
The Texas Covenants Not to Compete Act sets the rules and replaces any other test under common law. A covenant is enforceable when it is:
Ancillary to or part of an otherwise enforceable agreement, such as a purchase agreement, buyout agreement or supply contract, when it is made.
No broader in time, geographic area and scope of activity than needed to protect the goodwill or other business interest at stake.
If the limits go too far, the court reforms the covenant rather than voiding it. Separate statutory rules apply to covenants with physicians and certain other health care professionals.
Much of the price of a business is often goodwill: the customer relationships and reputation the seller built. A seller's non-compete protects what the buyer paid for, and the purchase agreement supplies the agreement the covenant must be tied to. Courts have generally accepted longer terms and wider areas in sale-of-business covenants than in other settings. Covenants from owner buyouts and business-to-business agreements follow the same statute, and the interest each one protects shapes what a court treats as reasonable.
The enforcing party can ask for a temporary injunction, which requires a valid claim, a probable right to relief and a probable, imminent and irreparable injury, plus a bond. A breached covenant can also support damages, unless the court first had to reform it. Many of these disputes resolve once the court rules on the injunction. See injunctions and restraining orders.
We review the covenant alongside the agreement it came from.
Customer contacts, new business filings and websites show what is happening.
A letter to the other side often stops the conduct or opens negotiations.
When the competition is ongoing, we ask the court to stop it while the case proceeds.
Many disputes end with a narrowed covenant or an agreed injunction, and the rest go to trial.
Have a question that isn't answered here? Call us at (817) 631-8842 or send a message.
Ask a QuestionIt depends on the agreement the covenant is part of. When that agreement's main purpose is personal services, the party enforcing the covenant must prove it meets the statute. When the main purpose is something else, such as the sale of a business, the party challenging the covenant must prove it doesn't.
The court reforms the covenant to reasonable limits on time, area and scope and enforces it as reformed. The trade-off is that the enforcing party can't recover damages for a breach that happened before the reformation, only an injunction going forward.
Generally, yes. Texas courts treat promises not to solicit customers as restraints of trade governed by the same statute, so they must be part of an otherwise enforceable agreement and reasonably limited. Which customers are covered, and for how long, usually decides the dispute.
No. The FTC adopted a rule, but a federal court in Texas set it aside before it took effect, and the FTC later formally removed it. The rule would also have allowed non-competes given in a bona fide sale of a business. Our article on the FTC noncompete rule has the history.
With Texas storm season well underway, PKC Founding Partner and trial attorney Drew T. Peters breaks down how to spot bad faith insurance practices after hail, wind,…
Initial consultations are held by Zoom and typically last 20 to 30 minutes.
150+ five-star reviews on GoogleRead them on Google: Plano office reviews (opens Google) and Southlake office reviews (opens Google)
Reviews describe individual clients' experiences. Every matter is different, and past results do not guarantee a similar outcome.
