Reformation of Overbroad Non-Compete Agreements in Texas (Part I)

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

Instead of invalidating overbroad covenants not to compete, Texas courts reform them by revising the unenforceable provisions to those that would be reasonable under the circumstances. See Butler, 51 S.W.3d at 794 (reforming and then enforcing an overbroad non-compete agreement). Specifically, where a covenant not to compete is ancillary to a separate, enforceable agreement, but its limitations on time, geographic area, or scope of activity impose greater restraint than is necessary, the court must reform the covenant to make the restraints reasonable. Evan’s World Travel, Inc. v. Adams, 978 S.W.2d 225, 233 (Tex. App.–Texarkana, 1998, no pet.); Am. Nat’l Ins. Co. v. Cannon, 86 S.W.3d 801, 808 (Tex. App.–Beaumont 2002, no pet.). The court has the power to reform the agreement even if neither party pleads for reformation. TransPerfect Translations, Inc., 594 F. Supp. 2d at 756. As one court stated in reforming an overbroad noncompetition agreement: “Section 15.51 requires a court to reform a non-compete agreement if it is unreasonably broad in scope. TEX. BUS. & COMM. CODE § 15.51(c).” Alliantgroup, L.P. v. Feingold, Civil Action No. H-09-0479, 2009 WL 1357209, at *1 (S.D. Tex May 11, 2009) (Rosenthal, J.).

Tomorrow we will discuss the timing of reformation.

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