In our previous blog series “Covenant Not To Compete When Buying or Selling a Business,” we looked at several state laws governing covenants not to compete in the context of buying or selling a business. This time, we will look at Texas law in depth, focusing on non-competition and non-solicitation covenants in the employment context. As we mentioned before, a non-compete is enforceable in Texas if: (i) it is part of an otherwise enforceable agreement at the time the agreement is made; (iii) the restraint imposed is no greater than is necessary to protect the goodwill or other business interests at issue; and (ii) it is reasonable as to time, geographic area, and scope of activity to be restrained. We also mentioned that Texas courts can reform the covenant to the extent necessary to make it reasonable as to time, geographic area, and scope of activity. And even though the statute only references “covenants not to compete,” it applies to non-solicitation covenants as well.
So when can employers use a non-competition/non-solicitation covenant in Texas?
A non-compete/non-solicit clause can be part of an employment agreement, including at-will employment, subject to the reasonableness and other requirements of the law. Independent contractors, however, can be a little tricky. The Texas Workforce Commission (“TWC”) states on its website, and it seems to be the general consensus in Texas, that “non-competition agreements and independent contractors do not go hand-in-hand.” The TWC says that “[s]uch a provision in a contract is strongly indicative of an employment relationship, . . . . The power to keep a person from pursuing his or her own business interests and to force a person to sign such an agreement is typical of the power wielded by employers over employees.” Although Texas courts will look beyond the label to ascertain the true nature of the transaction, a non-compete in an independent contractor agreement should generally raise a red flag.
Keep in mind, however, that a non-compete clause does not automatically make an independent contractor an employee. Determination of employee v. independent contractor status hinges on a variety of factors, of which the existence of a non-compete can be just one. In Perez v. Super Maid, LLC, for example, the court addressed whether the company’s maids, who were required to sign an “Employee Non-Compete Agreement for Supermaid, LLC,” were employees. Although the company maintained that its maids were independent contractors, the court found that they were employees based on a number of factors, including: (i) the company’s substantial control over how the maids perform the job duties (e.g., maids must clean floors on their hands and knees), their schedule (number of hours and order of assignments), and their movement (using GPS tracking systems); (ii) the maids’ lack of autonomy to increase their earning rate; (iii) absence of capital investment on the part of the maids; and (iv) lack of special skills on the part of the maids, among other things. In the court’s analysis, the non-compete clause was just one factor that confirmed the permanence of this working relationship characteristic of an employer-employee relationship.
This post is part of a multi-part series on non-competition and non-solicitation covenants under Texas law. You can find the other post by searching our blogs at www.mcbrideattorneys.com. In our next post, we will discuss what makes a non-compete/non-solicit reasonable as to time, geographic area, and scope of activity.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
 Tex. Bus. Comm. Code § 15.50(a).
 Id. § 15.51(c).
 See generally Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006).
 Texas Workforce Commission, http://www.twc.state.tx.us/news/efte/specific_criteria.html.
 See generally Perez v. Super Maid, LLC, Case: 1:11-cv-07485 (N.D. Tex. July 14, 2014).
 Id.About the AuthorR. Shawn McBride — is the Managing Member of The R. Shawn McBride Law Firm, PLLC. Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email R. Shawn McBride Law Firm or call (214) 418-0258.