15.51 of the Business and Commerce Code and Covenants Not to Compete: Texas Outsourced General Counsel Viewpoint

In Texas, enforcing a covenant not to compete requires navigating specific statutory guidelines that mandate the agreement be reasonable in time, geographical scope, and activity limitations while being ancillary to an otherwise enforceable agreement. Procedures for enforcement typically begin with a breach, followed by a swift legal response—often initiating with a request for a Temporary Restraining Order (TRO) or a temporary injunction to halt competition, as court-ordered injunctions are the primary, and often most desirable, remedy to prevent further irreparable injury to a business’s goodwill and trade secrets. If the agreement is found overbroad, Texas courts are empowered to "blue-pencil" or reform the contract, enforcing it only to the extent necessary, though this limits the employer’s ability to recover monetary damages for prior actions.

Section 15.51 of the Texas Business and Commerce Code serves as the primary statutory authority governing procedures and remedies in lawsuits aimed at enforcing covenants not to compete. Under this statute, courts are empowered to award an employer, or "promisee," both damages and injunctive relief if a former employee breaches a valid, enforceable covenant not to compete. The statute specifically authorizes courts to issue temporary restraining orders, temporary injunctions, or permanent injunctions to stop further breaches. Furthermore, Section 15.51(b) places the burden of proof on the employer to demonstrate that the covenant meets the reasonable criteria regarding time, geographical area, and scope of activity specified in Section 15.50.

If a covenant is found to be part of an otherwise enforceable agreement but is deemed overbroad or unreasonable in its limitations, Section 15.51(c) directs the court to reform the covenant to make it reasonable rather than voiding it entirely. Notably, if a court reforms the contract, the employer cannot recover damages for breaches that occurred before the reformation, restricting them only to injunctive relief for future violations. Additionally, if the employee successfully defends against the enforcement of an overbroad covenant, the statute allows the court to award the employee their attorney’s fees, particularly if the employer knew the agreement was unenforceable when it was signed.

Finally, Section 15.51 works in conjunction with Section 15.52, which makes these statutory criteria and remedies exclusive, essentially preempting common law claims regarding the enforcement of non-compete agreements. For specialized professions, such as healthcare practitioners, the statute provides specific, stricter rules, such as mandatory buyout provisions and shorter, narrower geographic limitations. This legal framework ensures that while businesses can protect their legitimate interests, such as goodwill and trade secrets, they cannot impose unreasonable restrictions that improperly limit an employee's ability to earn a living in Texas.

For a Texas small business, hiring outside corporate counsel is an excellent, if not essential, investment when dealing with restrictive covenants. Outside counsel provides specialized expertise that can make the difference between a fully enforceable agreement and one that is declared void by a court. They can carefully draft or review covenants to meet the "reasonable" standard, ensuring the contract protects legitimate business interests—such as confidential information or specialized training—rather than simply restricting competition. Moreover, specialized counsel can provide proactive risk management, advising on employee onboarding or exit procedures to avoid costly litigation or potential counterclaims for attorney's fees.

Taking swift action is crucial for a business’s legal standing, and good outside counsel is best equipped to handle the rapid evidentiary needs required for injunctions. Without expert advice, a small business risks losing crucial customer relationships or proprietary information, while simultaneously facing legal challenges that could invalidate their restrictive covenants. Retaining outside counsel for this purpose ensures compliance with the complex nuances of Texas Business and Commerce Code, transforming a potentially invalid contract into a strong, enforceable tool for protecting company assets.

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