Competition and Criminals

By Linda H. Evans,
Senior Associate.


Those tricky Texas non-competes pop up again! Earlier this month two Houston surgical assistants, who were sued by their former employer for launching their own business, were cleared by a Harris County jury. The former employer was seeking over a million dollars in damages when it sued the ex-employees for allegedly violating a non-competition agreement that prohibited them from working for another surgical company within a 10-mile radius of any client institution for two years after leaving. Because the former company has such a large network of client institutions, the agreement essentially prevented the ex-employees from working in any hospital or surgical center in Houston, Austin, Corpus Christi, Dallas, San Antonio, or any of the other cities where the company had contracts. Non-compete agreements are common and changes in Texas law have made them easier to enforce. But in this case, the suing company dropped the non-compete portion of the case right before jury selection and just focused on whether the two assistants violated their fiduciary duties by soliciting one another to open their own company. There is no question even low level employees have a legal responsibility not to steal trade secrets, divert business to a competitor, or take customer lists. But the jury did not believe any of that happened in this case, and the two ex-employees were cleared.


The lesson: Make sure your non-compete agreement is narrowly tailored to protect your company as much as possible, but not to completely ban the former employee from working for long periods of time. The longer the time frame and the wider the geographical scope of the agreement, the more likely it is to be unenforceable.


And speaking of narrowly tailoring policies to fit your needs . . . it has been common practice among many companies to prohibit the hiring of applicants who have been convicted of felonies. But over the past several months, the EEOC has issued guidance to employers on how to use arrest and conviction records during the employment screening process, including warnings that imposing blanket prohibitions against hiring those with criminal backgrounds can have a disparate impact on minorities who tend to have higher arrest and conviction records than other applicants. The EEOC urges employers to determine on a case-by-case basis whether the disqualification is job-related and a business necessity. The agency has been targeting high-level cases against companies that have blanket rules against hiring ex-offenders. For example, jobs that include work with children, senior citizens, or other vulnerable populations require higher standards than jobs such as maintenance or landscaping. Other factors to consider are the severity of the crime, how long ago the conviction occurred, and the specific duties for the job in question.


If you need help with your non-compete agreements or a quick review of your hiring policies, give us a call!