Doing Business in Texas: Business Practices Law
Texas has a number of trade regulations ranging from antitrust to deceptive trade practices laws. These business practices laws are the focus of our next Doing Business in Texas series. We will cover just a few of the basic business practices laws including antitrust laws, covenants not to compete, deceptive trade practices rules, trade secrets, and business opportunities.
The Texas Business and Commerce Code includes the Texas Free Enterprise and Antitrust Act, which is very similar to the federal antitrust Sherman Act. The Texas law covers trade and commerce occurring wholly within Texas, in contrast to the federal mandate of any interstate commerce. Luckily, the statute also maintains many of the federal antitrust exemptions by not prohibiting actions approved or required by a government agency and protects professional service providers taking action to cut costs or improve quality.
One of the unique provisions to the Texas act includes a specific standard for proving predatory pricing. While the federal standard is typically more subjective regarding the facts, Texas lays out a bright line rule that the seller must have an expectation of recouping losses incurred by charging the predatory pricing, the prices were below the average variable cost with substantial barriers to entry, the prices were below average total cost, and the benefits of the pricing is primarily from eliminating competition. This bright line rule makes any antitrust action predictable on the facts presented, allowing for greater freedom for businesses.
Texas antitrust laws may be enforced by the Attorney General or by any person injured by the violation. Even if the violation is pursued privately in court, the Texas Attorney General must be notified of the suit and violation.
Covenants not to compete are historically strongly discouraged in Texas courts. Texas courts will enforce a duly executed non-compete agreement if there was consideration in return for the promise and it does not impose on the promisee a greater restraint than is reasonably necessary to protect the business and good will of the promisor. When presented with a non-compete with flawed language or missing elements a Texas court will generally strike the entire non-compete agreement or provision. Any non-compete agreement or provision must be reasonable in its restrictions of time, geographic area, and scope of activity. If there are no limits to the non-compete, it is almost certainly void in Texas.
Deceptive trade practices including misleading or making false claims to consumers, unconscionable actions, and even breaches of warranty. The Texas Deceptive Trade Practices Act gives consumers a cause of action for deceptive trade practices and reduces the burden of proof from common law fraud breaches of warranty. Some of the conduct prohibited by the DTPA include: misleading statements on the origin or quality of goods, false advertising, misrepresenting warranties, and taking grossly unfair advantage of a consumer’s lack of knowledge to their detriment. There are many provisions for punitive damages for violations of the DTPA which can cost businesses many times what the conduct intended.
Texas business opportunities requires a registration with the Texas Secretary of State prior to offering and disclosure. Business opportunities are defined as a sale or lease of a product, equipment, supplies, or services for the purpose of enabling the purchaser to start a business and in which the seller represents that the purchaser will profit from the business opportunity or where the seller will provide a marketing program or other assistance. This includes any franchises offered in Texas. While these must be registered with the state, there are many exemptions for adhering to federal laws and guidelines, such as the FTC franchise rules. Although franchisors must still file a notice with the state of their exemption.
Texas business practices laws are a need to know for anyone doing business in Texas. While many are straightforward and easy to comprehend, a slip can cost your business many times over the initial action. Stay on top of Texas business laws and compliance by giving Reidel Law Firm a call at (832)510-3292 or use the email button below.