Are non-compete agreements enforceable in Texas?
1. Baseline Rule. The Texas Covenants Not to Compete Act, Tex. Bus. & Com. Code §§ 15.50-15.52, governs all employee non-competes. A covenant is enforceable if it is "ancillary to or part of an otherwise enforceable agreement" and contains reasonable limits as to time, geography, and scope of activity.
2. Reasonableness Factors. Courts consider (a) the protectable business interest — confidential information, customer goodwill, trade secrets; (b) geographic scope tied to the employee's actual territory; (c) duration — one to two years is typically enforceable, five years is rarely sustained; (d) hardship on the employee; and (e) public-interest impact, especially in healthcare. Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), confirmed that stock options can supply the ancillary consideration.
3. Consideration. The "otherwise enforceable agreement" prong typically requires the employer to provide confidential information, specialized training, or equity. At-will employment alone is insufficient under Light v. Centel Cellular, 883 S.W.2d 642 (Tex. 1994), as modified by Sheshunoff Mgmt. Servs. v. Johnson, 209 S.W.3d 644 (Tex. 2006).
4. Wage Thresholds. None.
5. Blue Pencil / Reformation. Section 15.51(c) mandates reformation: if a covenant is overbroad, the court "shall reform" it to the extent reasonably necessary, but cannot award damages for prior breach of the unreformed terms.
6. Industry Carve-Outs. Physicians: § 15.50(b) imposes special rules — the covenant must allow buyout at a reasonable price and grant patient access. Lawyers are barred by Texas Disciplinary Rule 5.06.
7. FTC Rule. The FTC's near-total ban (16 C.F.R. § 910, April 2024) was enjoined nationwide by Ryan LLC v. FTC, ___ F. Supp. 3d ___ (E.D. Tex. Aug. 20, 2024); the case is on appeal to the Fifth Circuit. Texas law continues to govern.
8. Garden Leave / Forfeiture-for-Competition. Permitted and increasingly common; forfeiture of unvested equity for competing is generally enforceable.
9. Choice of Law. Texas courts apply Texas law to Texas-resident employees even when contracts select another state, especially if the chosen state would void the covenant.
This is legal information, not legal advice.
- Your covenant restricts you from working in any capacity statewide for several years
- You are a physician and want to invoke the statutory buyout right
- Employer seeks a temporary restraining order to block your new job
- Tex. Bus. & Com. Code §§ 15.50-15.52
- Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011)
- Sheshunoff Mgmt. Servs. v. Johnson, 209 S.W.3d 644 (Tex. 2006)
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.