Restrictive Covenants: How to Protect Your Business Through Non-Competes, Non-Solicits, & Confidentiality Agreements
- Chris Johnsen
- Jul 2
- 6 min read
Updated: Sep 16
The legal protection of your business depends on restrictive covenants which defend confidential information and client relationships as well as competitive advantages.
The document provides a detailed guide about implementing non-compete agreements and non-solicitation clauses and confidentiality agreements according to Texas law as well as recent federal court decisions affecting enforceability.
Restrictive covenants become essential business tools when properly executed to protect companies of all sizes from market risks during competitive market conditions.
The main purpose of restrictive covenants is to prevent vital employees or contractors from exploiting inside information or destroying your customer network after their departure from the company. Texas businesses in healthcare construction technology real estate and professional services need to understand restrictive covenants because their implementation has become essential.
Core Types of Restrictive Covenants
Confidentiality Agreements:
Purpose: Protect trade secrets, client lists, and proprietary information.
Enforceability: Courts generally uphold confidentiality agreements if they are reasonable and not overly broad.
Key Considerations:
Define "confidential information" clearly (e.g., financial data, customer lists). -Avoid attempting to restrict general industry knowledge or skills.
Companies utilize confidentiality agreements as non-disclosure agreements (NDAs) to safeguard their business information across different employment levels and commercial partnerships. The protection of intellectual property along with operational strategies and business development plans depends on confidentiality agreements as fundamental legal instruments. Texas law supports the enforcement of these agreements as long as they contain precise definitions. A court may limit or dismiss an agreement when it fails to distinguish between genuine trade secrets and ordinary professional knowledge. Businesses need to adjust their confidentiality provisions according to their model structure and specific industry characteristics for maximum effectiveness.
Non-Compete Agreements
Purpose: Prevent employees or contractors from joining competitors or starting rival businesses.
Texas Requirements:
Must be ancillary to an enforceable agreement (e.g., employment contract).
Reasonable in duration (typically 6 months–2 years) and geographic scope (e.g., specific cities or regions).
Protect legitimate business interests (e.g., trade secrets, client relationships).
Texas law permits non-compete clauses when they fulfill the requirements of a reasonableness test. The court will refuse to enforce covenants which restrict someone from working if the agreement is too broad or unclear about geographic area or industry limitations. Businesses must link non-competes to genuine business interests and state specifically how the agreement safeguards proprietary information or client goodwill to meet enforceability requirements. Texas non-compete agreements that are properly drafted will maintain both legal soundness and court-defensible status.
Non-Solicitation Agreements
Customer Non-Solicits: Restrict poaching of clients or customers.
Employee Non-Solicits: Prevent recruiting current employees to a competitor.
Enforceability: Courts favor non-solicits over non-competes because they are narrower in scope.
Non-solicitation clauses serve as effective tools to maintain existing customer relationships and internal team stability. The courts tend to accept non-solicits more easily because these restrictions do not block former employees from working but rather limit their ability to target their existing business relationships. Texas courts usually consider non-solicitation agreements as reasonable as long as they target either current customers or employees who worked directly with the departing employee.
2. Strategies for Maximizing Enforceability
Tailor Agreements to Roles
High-Risk Roles (e.g., Sales, Executives): Use non-competes and non-solicits for employees with access to sensitive data or client relationships.
Low-Risk Roles (e.g., Janitorial Staff): Avoid non-competes; focus on confidentiality agreements.
The particular effectiveness of restrictive covenants depends on how specifically they are matched to the individual’s job responsibilities. Court decisions typically reject broad restrictive covenant provisions which apply to all employees without functional distinction. Companies should adapt their agreements according to the extent of sensitive information exposure which employees face to achieve better protection and fairness in their workplace.
Adopt a "Belt and Suspenders" Approach
Employers who implement non-competes together with non-solicits and confidentiality agreements will maintain enforceable covenants even when one covenant fails.
The protection of employers relies on implementing multiple layers of defensive measures. The courts' refusal to enforce a non-compete does not prevent them from upholding confidentiality or non-solicitation clauses. The strategic method enables businesses to protect their interests by enforcing multiple protection layers instead of placing their entire legal protection in one covenant. The implementation of various types of covenants functions as a warning system that discourages workers from violating the agreements.
Ensure Proper Documentation
Restrictive covenants need to be placed inside individual agreements that stand alone from employee handbooks. During onboarding or promotions ask employees to sign acknowledgement documents.
The successful implementation of restrictive covenants depends heavily on proper documentation. The court system requires proof that employees signed the agreements knowingly while maintaining voluntary status and receiving valuable consideration. Employers need to document their agreement presentation process and use plain language within the agreements before they require employees to re-sign them for promotions or role changes.
3. Texas-Specific Enforcement Considerations
Reasonableness Standards
The geographic restrictions should cover areas where your business operates (e.g., Houston metro area as opposed to statewide operations). The maximum acceptable duration for non-competition clauses should extend from one to two years. Non-competes should restrict specific products or services instead of covering entire industries.
Texas Business and Commerce Code Section 15.50 allows courts to enforce covenants when they stem from an enforceable agreement and impose limitations that match the employer's necessary protection needs. The judicial system can modify broad agreements through "blue pencil" procedures but this practice is not mandatory. Employers need to write their initial covenant carefully since this will minimize legal disputes while producing better results.
Recent Texas Case Trends
Texas courts analyze non-competes more thoroughly yet they still enforce specific agreements that align with industry standards. Non-solicitation covenants experience better success rates during legal challenges when compared to other types of agreements.
Texas courts have started to invalidate broad covenants which employees did not have meaningful access to proprietary data. Non-solicitation agreements built on actual customer relationships function effectively as strong enforcement tools when properly designed.
4. Federal Developments: FTC Non-Compete Rule
Current Status
The FTC's 2024 rule banning most non-competes remains in a Texas federal court stay until July 2024.
The rule's future remains uncertain due to ongoing legal battles and the 2024 presidential election results.
The business and legal communities received significant impact from the FTC's attempt to ban non-compete clauses nationwide yet the rule's implementation status remains unclear. The ongoing legal proceedings require Texas employers to depend on existing state laws while they develop backup strategies for the possible rule implementation.
Practical Implications
Texas businesses have the authority to enforce non-competes according to state laws. Texas businesses need to track post-election developments because Democratic rule might revive the FTC rule while Republican rule would preserve current conditions.
Employers need to stay active by examining their employment contracts and seeking legal guidance frequently and monitoring upcoming regulatory changes. The present moment requires employers to verify that their restrictive covenants fulfill both present Texas regulations and possible upcoming federal restrictions.
5. Best Practices for Employers
Consult a Business Attorney:
Texas law and industry norms should guide the development of your agreements.
Employers who need legal help with enforcement should work with attorneys who have experience in litigation to prepare for potential challenges.
Update Agreements Proactively:
Businesses should conduct annual covenant reviews as well as reviews during market expansion efforts.
The agreement must contain provisions for handling remote work conditions particularly for virtual employees.
Educate Employees:
The main reason behind restrictive covenants should be explained to new hires during their first days.
Management personnel should receive training regarding the proper handling of confidential data to prevent unintended breaches.
The effectiveness of restrictive covenants depends entirely on how well the organization executes their enforcement and management systems. The combination of regular training and open communication helps both staff members and managers grasp their responsibilities and the severe penalties associated with rule violations.
6. Case Study: When Restrictive Covenants Fail
A Texas construction company faced litigation after a sales manager left to start a competing firm. The court declared the original non-compete agreement invalid because it completely restricted work throughout the entire construction industry across all nations. The company managed to enforce the non-solicitation provision (which prohibited contacting clients from the prior year) and received compensation for their losses.
The enforcement of agreements depends on specific language and agreement terms according to this case. Non-solicits that are properly defined create enforceable restrictions whereas overly broad restrictions tend to fail legal tests. The enforceability of agreements depends on their specific context and their scope together with their fair terms.
7. In Summary: Balancing Protection and Fairness
The enforceability of Texas restrictive covenants depends on proper drafting yet improper execution leads to expensive legal conflicts. The law firm Johnsen Law brings together extensive understanding of Texas business law with practical experience in litigation to create agreements that safeguard client interests effectively.
Key Takeaways
Non-solicits provide a more secure solution than broad non-competes should be used.
Follow FTC rule changes following the election.
Choose attorneys who specialize in drafting restrictive covenants as well as defending them in court.
Texas businesses trust our attorneys to protect their vital assets including talent, information and competitive advantage. Our team provides assistance for every stage of employment agreement development from first-time creations to multiple-state policy portfolio updates.
Get strategic legal support and tailored guidance by reaching out to Johnsen Law—your business protection partner.
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