California doesn’t allow Non-Competes. Texas does.

Background reading: Grandstanding about Non-Competes

While most startups are subject to Delaware law for their corporate law, in the U.S. labor law is typically governed by the law of the state where an employee is located. This means even if you’re a Texas startup incorporate in Delaware, if you hire an employee in Texas that relationship is governed by Texas labor law.

Because so much of the literature about tech startups has historically come from California, there’s an underlying presumption among inexperienced teams that no startups have non-competes with their employees. That presumption is wrong. Only a handful of states in the country ban non-competes, and Texas is not one of them. Even many California-based startups will have non-competes in contracts they sign with employees outside of California.

For a deeper-dive into the theoretical issues of the pros and cons about non-competes, see the above-linked article. The truth is that most company executives will admit, at least privately, that non-competes can be extremely valuable as part of your talent strategy. If you’ve invested significant resources in building up an executive with your company’s proprietary knowledge, it can be very valuable, and reasonable, to expect that employee to not simply take that knowledge and sell it quickly to the highest bidding competitor.

In fact, non-competes can, in the right contexts, be valuable ways for small startups to protect themselves from larger competitors who can poach talent with their deep pockets. The venture capital community loves to talk about how non-competes are universally evil, because banning them leads to talent wars, and guess who funds those talent wars?

If you’re an Austin startup recruiting in Texas, make sure you have advisors with deep experience operating in that specific geography, because the rules and norms are very different from what you’ll here from the microphones typically located in the Bay Area.

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