Texas non-compete laws are killing Austin’s chances of being the next Silicon Valley

Legal News GavelSilicon Valley has been successful partially due to employee mobility. California forbids non-compete agreements, and it’s a fundamental policy of the state that any agreement in restraint of competition is to that extent void. There are certain exceptions, such as a person selling the goodwill of a business to a buyer who wants him or her to refrain from carrying on a similar business within a certain geographic area in which the original business has been sold.

However, most non-compete agreements that are enforceable to restrict workers in other states are void in California. Almost one in five employees in America is now subject to a non-compete clause, and many of these employees are in low-paying or blue collar jobs. For example, a well-known case involved the sandwich chain Jimmy John’s, which tried to stop its former franchisees from working for other sandwich makers. As a result, Silicon Valley employees are able to shift tech jobs relatively easily. The result has been substantial innovation.

Researchers have found that non-compete clauses in other states force workers to stay longer in one job, and they earn less than they would in a state like California, or in a country like Israel, which is also hostile to non-compete agreements. Although firms may invest more in research and development if their investment is protected by a non-compete clause, a worker who is locked into a particular company invests less in self-training, and this affects what the worker produces and creates. Ultimately, non-compete clauses chill innovation more than they help it.

Although Austin’s tech industry grew by 41.4% between 2001 and 2013, the rise of enforceable non-compete agreements is stifling opportunities for employees to move between companies. Unlike in California, in Texas, a carefully drafted non-compete agreement is likely to be enforced by the courts. For example, an properly phrased non-compete agreement related to a legitimate interest like trade secret protection that has a reasonable scope is likely to be enforced.

In Texas, an employee’s promise not to compete must be part of an otherwise enforceable agreement. A non-compete agreement can’t be overbroad and needs to be limited by geographic region, clientele base, duration, and scope of prohibited activities. The scope of the non-compete is not supposed to be broader than necessary to protect the employer’s interests.

An employee in Texas needs to consider not only whether he or she is covered by a non-compete agreement, but also whether he or she may be affected by the Texas Uniform Trade Secrets Act. Under this law, an employer can sue a former employee if he or she takes trade secrets belonging to the employer.

A worker’s value to the next employer stems from skills and knowledge in prior positions. When non-compete agreements are enforced, the employer is treated as owning the skills and knowledge that the worker gains. When an employee signs a non-compete agreement in Austin, he may become an expert in a particular type of technology, but he can’t use his knowledge when he tries to move on to another job. Ultimately, this prevents Austin from developing its full potential as a site of innovation.

It can be important to obtain representation from an experienced employment lawyer when you have a dispute with your employer regarding non-compete agreements or other matters. Contact us at (214) 528-6500 or via our online intake form.

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