Overbroad Non-Compete: Will a Texas Court Rewrite It or Throw It Out?

Reformation is mandatory, not discretionary

Many states give judges a choice when a non-compete reaches too far: strike the offending words, rewrite the clause, or refuse to enforce it at all. Texas does not. Business and Commerce Code section 15.51(c) says that if a covenant is ancillary to an otherwise enforceable agreement but contains limitations as to time, geographic area or scope of activity that are not reasonable, the court shall reform the covenant to the extent necessary to make the limits reasonable, and shall then enforce the covenant as reformed.

For an employer that means an overbroad agreement is not a lost cause. For a former employee it means the argument “this clause is too broad, so I am free” does not work in Texas. The real fight is over how much the court cuts and what the employer loses by needing the cut at all.

What reformation does not reach

Reformation fixes only the second half of the enforceability test. It assumes the covenant was ancillary to an otherwise enforceable agreement in the first place. If the employer never gave the consideration it promised, or the only consideration was continued at-will employment, there is nothing to reform; the covenant simply fails, and the court does not rescue it. That first half of the test is explained in whether a non-compete is enforceable in Texas.

Reformation also reaches only the three named limits: time, geography and scope of activity. A court will shorten a five-year term, shrink a nationwide territory to the employee's region or customer list, and narrow “any competing business” to the work the employee actually did. It will not add consideration that was missing or supply a protectable interest the company never had.

The price of overbreadth: no damages before the fix

Section 15.51(c) continues: if the court reforms the covenant, it may not award the employer damages for a breach of the covenant before its reformation, and the relief for that period is limited to injunctive relief. This is the part employers most often learn too late.

Consider the timing. The employee leaves, competes for several months, the employer sues, and at the hearing the court finds the covenant overbroad and reforms it. Every customer lost in those months is lost without compensation under the covenant claim, no matter how clearly the employee's conduct would have violated even the narrowed version. The employer gets an injunction from the reformation date forward, and damages only for breaches of the reformed covenant after that date.

The employee's fee claim

The same subsection gives a former employee a weapon. In a personal-services agreement, if the employee proves that the employer knew at the time of signing that the covenant's limits were unreasonable, and that the employer sought to enforce the covenant to a greater extent than necessary to protect its goodwill or other business interest, the court may award the employee the costs, including reasonable attorney's fees, of defending the enforcement action.

Two elements must both be shown: knowledge of overbreadth at signing, and an attempt to enforce beyond what was necessary. An employer that uses a one-size-fits-all nationwide covenant for every hire from receptionist to vice president, and then sues a regional salesperson on the full text, is the pattern this provision was written for. An employer that sues on a reasonable reading of the covenant, and asks the court to enforce only what the employee's role justifies, is much harder to tag with fees.

Because the Act's remedies are exclusive under section 15.52, the employer has no mirror-image fee claim on the covenant itself. The asymmetry is deliberate.

When the court reforms: hearing or trial

The statute speaks of reformation in the court's judgment, which has led former employees to argue that no narrowed covenant can be enforced until trial. Texas courts of appeals have not accepted that reading in practice. A trial court deciding whether to grant a temporary injunction can tailor the scope of the injunction to what the evidence shows is reasonable, enjoining the employee from the customers and work the covenant can legitimately reach while declining to enforce the rest. The formal reformation of the contract comes with the final judgment, but the practical narrowing happens at the temporary injunction hearing. How that hearing works is covered in temporary injunctions in Texas non-compete cases.

This has a strategic consequence. The employer that asks for a narrowly tailored injunction at the hearing, rather than the full text of the covenant, usually gets more of what it asks for, avoids the knowing-overbreadth fee argument, and sets up the damages claim for the period after the order.

Example

Suppose a Dallas software reseller's standard agreement bars every employee, for three years, from working for any technology company anywhere in the United States. A regional account executive who sold to about sixty customers in North Texas resigns and joins a competitor, taking twelve of those accounts in the first quarter. The reseller sues eight months after she left.

The court finds the covenant ancillary to an enforceable agreement because she received confidential pricing and renewal data. It then reforms the covenant to the sixty customers she handled, to the sale of comparable software, and to eighteen months. The reseller gets an injunction on those terms. It recovers nothing for the twelve accounts lost in the eight months before the ruling, because section 15.51(c) bars pre-reformation damages. And because the company applied a nationwide, industry-wide covenant to a regional salesperson and sued on its full text, she has a credible claim for her defense costs. Had the covenant been written to her territory and customers, the company would have had damages for the twelve accounts and no fee exposure.

What the employee will argue, and how it plays

• “It is so broad it should be void.” Not under Texas law. The court must reform if the first half of the test is met. The argument only wins if the employee can show the covenant was never ancillary to an enforceable agreement.
• “There is nothing left to enforce after the cuts.” Sometimes true for a short-tenured employee with few customer relationships. The reformed covenant can be narrow enough that it does not reach the employee's new work.
• “The company knew it was overbroad.” The fee argument. The best evidence against it is a covenant drafted to the role and a lawsuit that asked only for what the role justifies.
• “No damages for anything before today.” Correct for the covenant claim. Employers answer by pleading companion claims that carry their own damages, such as breach of a confidentiality agreement, breach of the duty of loyalty for conduct while still employed, and trade secret misappropriation, none of which is subject to the reformation rule.

What an employer can do now

1. Read the covenant against the employee's real role for the last two years: customers, territory, duties. Write down what a reasonable version would say.
2. Decide what to ask for. Requesting the narrowed version from the first letter protects the damages claim going forward and defuses the fee argument.
3. Identify companion claims whose damages do not depend on the covenant. A confidentiality agreement and the duty of loyalty often matter more than the non-compete when a key employee leaves with clients.
4. For future hires, draft to the role. Separate forms for sales, technical and executive staff, each with a term and territory the company can explain in a hearing.

A litigator's job in these cases is to predict where the court will draw the line and to position the company on the right side of it before the first filing. Tina Wysk represents Dallas employers in non-compete and trade secret litigation in state and federal court, including the reformation questions that decide what a covenant is worth.