Texas Right to Work Statutes
Since 1947, the Texas Right to Work Law has protected Texans from having to join a union as a condition of employment. TX. Lab. Code Ann., chapter 101 makes it illegal to fire, suspend, or in any other manner discriminate against employees or applicants for employment based on union/non-union status and further prohibits employers from requiring union membership or payment of union dues as a condition of employment. This means that even though an employee may work for a union-employer, the employer cannot require them to pay union dues if they do not want to.
The other purpose of Chapter 101 is to prevent an employer from entering into an agreement with a union requiring employees who are to perform services under the contract to become or remain members of the union which performs the same type of services. In other words, your employer cannot require you to join a union as a condition of employment even if they have a contract with the union. If someone believes their rights under this Chapter have been violated, they can file a complaint with the Texas Workforce Commission who can investigate the claim and assess administrative penalties against the employer . Under Labor Code Chapter 101, a person who violates a provision of this Chapter is liable to any person injured under this Chapter, in an amount equal to three times the damages sustained by the person, and reasonable attorney’s fees as may be allowed by the court. Even if the Texas Workforce Commission determines that a violation of this chapter did occur, the employee must still file a lawsuit against their employer to properly recover such damages, however the law does not prohibit the employee from also going through the Texas Workforce Commission complaint procedure first. They can use the results of the investigation to strengthen their case when they file suit against their employer.
The law applies only to private employers, governmental entities are free to enter into union security agreements with a union. The law also does not apply to employees working under a federal labor standards act or employees who are covered under an agency shop provision of a contract agreed to under the National Labor Relations Act or Railway Labor Act (see Chapter 102 of the Texas Labor Code).
Texas Non-Compete Agreements
Non-compete agreements are the second most common type of post-termination restraint behind confidentiality agreements. A non-compete is an agreement between an employer and an employee whereby the employee agrees not to conduct certain business activities for a specified period of time within a specified geographical area after the end of employment. A non-compete becomes a restraint of trade if it imposes a hardship on the employee by denying the employee of the opportunity to earn a living. Because they restrict trade between parties, non-competes fall under Texas law which seeks only to protect lawful goodwill from unlawful appropriation by a competitor.
In Texas non-competes, like all other contracts in employment, are disfavored. As such, Texas Courts have required the party seeking to enforce a non-compete to show that the agreement (1) is ancillary to or part of an otherwise enforceable agreement, (2) contains limitations as to time, geographical area, and scope of activity to be restrained, and (3) does not impose a greater restriction than necessary to protect the good will or other business interest of the promise. Failure of any of these requirements will result in a court deciding not to enforce the agreement as is. However, a Texas Court will reform an agreement deemed to be overly broad if the valid portion of the agreement can be separated from the invalid portion of the agreement. Additionally, covenants not to compete that are ancillary to the sale of a business are governed by Chapter 15, Subchapter F of the Texas Business and Commerce Code.
Because a clause prohibiting a party to engage in some other potential occupation or business either during or after the period of contract is unenforceable unless it answers the requirements above, parties entering into a valid agreement must know exactly what activities are to be proscribed. Courts look to the language of the agreement to determine the proper scope of the restriction.
Right to Work Versus Non-Compete Restrictions: Is There Balance?
Balancing Right to Work and Non-Compete Agreements
Given Texas’ status as a right to work state, for many, it is shocking that non-competes are so prevalent within the state. And this conflict creates tension when trying to comprehend the relationship between right to work and non-competes, particularly when you realize that a Texas-based business could potentially ask employees to sign an employment agreement with a non-compete clause where they would be expected to work outside of Texas and not be bound by the obligations of a non-compete agreement while working in Texas. You might be surprised to learn that there is no actual conflict between the two, but rather, right to work laws have the ability to co-exist comfortably with non-compete agreements. Since an individual’s right to seek employment is at stake, the Texas courts interpret non-compete clauses very narrowly. The only time that a non-compete agreement can be enforced, according to the Texas Business and Commerce Code, is when it protects the employers ‘good’ business interest, while imposing no burden on the employee and their livelihood. In order to be lawful, non-compete agreements must be limited in scope, with specific geographical location(s) and timeframe to protect the interest of the business, such as trade secrets. Therefore, it is necessary for employers to find a delicate balance when drafting non-compete agreements, regardless of whether they are making use of them in a right to work state or not.
Rights and Protections Afforded Employees
Employees have some rights and protections under both right to work laws and limitations on non-competes, largely provided by statute. Employees should know the important details of these laws.
Non-Compete Statute
It is important for employees in the whole country to understand that the law prohibits employers from requiring employees to sign a non-compete agreement that is between the employee and employer. In Texas, an employer cannot require an employee to enter into a non-compete unless the employer gives the employee something "sufficiently valuable" in exchange for signing the agreement.
Texas non-compete statute covers both employees and independent contractors. The law goes on to provide, among other things, that the non-compete must be for a "legitimate" business interest, the restrictions in the non compete "must give rise to the purpose of the agreement," the restrictions must be reasonable in the time restraint (two years is the maximum in Texas), and reasonable in the distance restriction (generally interpreted to mean the geographic area where the employee worked).
There is a trap in the statute for employees, however. It provides the parties the ability to get a court to blue pencil the contract. However, the statute says if the court determines that the covenant not to compete was ancillary to or part of an otherwise enforceable agreement, and unenforceable because its restrictions are overbroad, then the court may reform the covenant and grant only the equitable relief allowable for the breach of the agreement. Texas law does not allow blue penciling of the contract as a matter of course. Thus, the statute clearly favors employees.
Right to Work Statute
The Texas Right to Work statute provides that an employee cannot be forced to join the union as a condition of employment or as a condition of receiving or continuing employment. This was the situation for many decades in the country .
Some private contracts still require union membership, and federal government employees are not covered by the Texas right to work statute. While many companies in the private sector have collective bargaining agreements with unions, it is common for employees to sign contracts that require the employees to join a union and pay dues as a condition of employment.
In addition, employers can show that an employee and union agreed to become unionized in exchange for a better deal for both the employee and the union. Generally, these employees who are union members do not need to be concerned about signing a non-compete, since they are covered by a collective bargaining agreement which covers their entire working relationship with the company.
In some cases, employers and unions negotiate an agreement to make employment in a company automatically subject to a collective bargaining agreement if and when the workers vote to join the union. If you vote to join a union, you cannot later claim you did not know your employment was covered by a collective bargaining agreement.
The Right to Work statute affords employees the ability to sue for damages if their rights under the Right to Work are infringed upon. If an employee is terminated because of his or her refusal to join a union as a condition of continued employment, the employee can sue his or her employer for back pay and damages (like lost income, out of pocket expenses, even punitive damages) caused by the employer’s infringement of the statute. The damages provisions in the statute are considered mandatory by Texas courts.
The statute does not provide employees a right of action against the union. Most of the time, the union will have an obligation under its own constitution the protect its members from violations of the Texas Right to Work statute. Employees should contact their union for more information.
Leading Practices for Employers
In Texas, best practices for non-compete agreements include continuing to bolster the consideration that the employer is providing to the employee in exchange for signing a non-compete. Consideration could be a pro-rata split of the revenue or profits that are generated from the particular customer that has the relationship with the employee, it could be a promise by the employer to pay the commissions due as long as the customer remains with the company, etc., provided that whatever the consideration it is at least adequate under Texas law so that the employee will not argue in court that the non-compete is unenforceable. In Texas, the scope of the restrictions and the geographical areas can be overly broad. Most Texas courts give the employer the benefit of the doubt and interpret its desired effect as long as it is not overly burdensome on the employee. Courts try to avoid having to strike down a non-compete signed by an employee who is not an owner or key executive. However it is risky for the drafter to push the envelope too far by having the court stretch the restrictions beyond their intended effect without solid evidence supporting the proffered reason for the restriction. The duration of the restrictions should be re-examined. While in the past courts have upheld restrictions for two and three years for executives, the trend appears to be that employers will lose credibility with judges for having such restrictions in the absence of a showing that the employer is granting something very valuable in exchange for the non-compete and that the non-compete serves to protect the employer’s enforceable interest. Again, most of these issues can be resolved if there is an effort to document why the restrictions are needed. Oftentimes, particularly with a high level executive, the employer can request a letter from the departing executive confirming the confidentiality, antipiracy and non-competition restrictions and stating that the relationship is being dissolved amicably and that the executive does not intend to violate the restrictions.
Developments in the Law
There have been no known recent changes in Texas to the law governing enforcement of non-compete agreements, although a host of rulings with varying facts and legal circumstances continue to arrive from Texas courts. The combined effect of these rulings has been to increase compliance risks for employers in structuring intellectual property or non-competition provisions in employment agreements. Proposed bills recently submitted in the Texas legislature, however, reflect an ongoing desire on the part of some private sector employers to obtain greater predictability in the scope of rights that may be retained following termination of an employment relationship. There is no formal position yet on these bills from Governor Abbott, but if he signs them into law, they will provide meaningful guidance to Texas employers.
SB 315 (A Bill Relating to Restrictions in Employment Agreements) This bill would add Chapter 15 to the Texas Business and Commerce Code, entitled the "Texas Free Market Non-Compete Agreement Act" and would restrict the scope of allowable non-compete provisions. Specifically, SB 315 would prohibit non-compete provisions longer than one (1) year or broader in geographic application than the county or counties within which the employer’s business operations were principally conducted as of the time of termination. In addition, non-compete agreements could not prohibit competition by sale of goods, services or facilities used in the workplace under the terms of the non-compete agreement. Any such restrictions exceeding the periods, geographic areas or types of competition set forth in the Act would render the non-compete agreement void and would be unenforceable. Further , a non-compete agreement breach would not also be a breach of fiduciary duty of loyalty to the former employer. Non-solicitation provisions would also receive specific statutory treatment under the bill in a manner similar to non-compete agreements. The bill would also address enforcement of trade secrets and other confidential information and generally protect the ability of an employer to seek injunctive relief. Violations would be subject to both actual and punitive damages with an award of attorney’s fees, in the discretion of the court, sufficient to cover the cost of bringing suit.
SB 314 (A Bill Relating to the Enforceability of Certain Provisions of Contracts Providing for Restraint from Competition or Employment) This bill would basically extend existing statutory cap on late fee limits of 10% to all liquidated damages provisions in private "non-suit agreements." Texas courts have generally recognized the 10% limitation as enforceable, based on legal principles, but failure to expressly adhere to that limit can create uncertainty.
SB 774 (A Bill Relating to Certain Limitations on Records That May be Subpoenaed from Employers) With respect to recent litigation, SB 774 is designed to limit a former employee’s power to access the former employer’s trade secret, confidential and proprietary information, but only after an agreed protective order is in place. Specifically, the draft law provides for a judicial seal over any such information, so that it may only be unsealed when certain conditions are met. The bill also would place limits on the scope of the inquiry and types of documents that may be requested in discovery and in the Department of Labor wage claim setting.