Texas Non-Compete Agreement

Introduction

Key Things to Know

1. 1

   A non-compete restricts a former employee from competing with the business after the job ends. Texas enforces a reasonable one under Business and Commerce Code Section 15.50 and, rather than voiding an overbroad covenant, requires a court to reform it to reasonable limits.

2. 2

   Texas enforces non-competes under Business and Commerce Code Section 15.50(a): a covenant is valid if it is ancillary to or part of an otherwise enforceable agreement at the time it is made and is reasonable in time, geographical area, and scope of activity, no broader than necessary to protect the employer's goodwill or other business interest. Sections 15.50 to 15.52 are exclusive and preempt common law.

3. 3

   Texas has no salary or income threshold for a non-compete. An employee at any pay level can be bound if the covenant is ancillary and reasonable. Do not rely on another state's wage floor when the worker is in Texas.

4. 4

   The restraint must be reasonable in time, geographical area, and scope of activity (Section 15.50(a)). The statute sets no fixed maximum for ordinary employees; reasonableness is fact-specific. Courts in Texas generally uphold restraints of roughly one to three years tied to where the employee worked or the employer competes, and scrutinize industry-wide or open-ended bans.

5. 5

   The covenant must be ancillary to an otherwise enforceable agreement. Courts in Texas generally hold that continued at-will employment alone is not sufficient consideration; the employer should give something that gives rise to the protected interest, such as confidential information, specialized training, or trade secrets (as in Sheshunoff and Mann Frankfort).

6. 6

   Texas is a mandatory reformation (not strict blue-pencil) state. Under Section 15.51(c) a court shall reform an unreasonable covenant to make it reasonable and enforce it as reformed, but may not award the employer damages for a breach before reformation and limits relief to injunctive relief. Physicians and other health care practitioners have carve-outs (Sections 15.50(b) and 15.501).

7. 7

   Because a non-compete must be reasonable and ancillary, many Texas employers also use a confidentiality or non-disclosure agreement under the Texas Uniform Trade Secrets Act (Civil Practice and Remedies Code Section 134A.001 et seq.) to protect trade secrets and customer data, which can also supply the consideration a Texas non-compete needs.

Texas Requirements for Non-Compete Agreement

• Employee Non-Competes Are Enforceable

  In Texas a reasonable employee non-compete is enforceable. Business and Commerce Code Section 15.50(a) makes a covenant not to compete enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time it is made and is reasonable in time, geographical area, and scope of activity, no greater than necessary to protect the employer's goodwill or other business interest. This is the statutory standard for the whole state.

• Must Be Ancillary to an Enforceable Agreement

  The covenant must be ancillary to or part of an otherwise enforceable agreement at the time it is made (Section 15.50(a)). Courts in Texas generally hold that continued at-will employment alone is not sufficient consideration; the employer must give something that gives rise to the protected interest, such as confidential information, specialized training, or trade secrets. This is the requirement Texas non-competes most often fail.

• Reasonable Time, Area, and Scope

  The restraint must be reasonable in time, geographical area, and scope of activity and no greater than necessary to protect the employer's business interest (Section 15.50(a)). Texas sets no fixed maximum for ordinary employees; reasonableness is fact-specific. Courts in Texas generally uphold post-employment restraints of about one to three years tied to where the employee worked or the employer competes, and scrutinize industry-wide or open-ended bans.

• No Income Threshold

  Texas has no salary or income threshold that makes a non-compete valid. Section 15.50 turns on whether the covenant is ancillary and reasonable, not on the employee's pay, so an employee at any level can be bound. Do not substitute another state's wage floor for a Texas worker. The physician and health care buyout caps are tied to annual salary but are buyout limits, not an enforceability wage threshold.

• Courts Reform Overbroad Restraints

  Texas is a mandatory reformation (not strict blue-pencil) state. Under Section 15.51(c), if a covenant is ancillary to an otherwise enforceable agreement but its limits are unreasonable, the court shall reform it to make it reasonable and enforce it as reformed, rather than voiding it. The employer may not recover damages for a breach occurring before reformation, and relief for that period is limited to injunctive relief.

• Statute Is Exclusive and Preempts Common Law

  Section 15.52 makes the enforceability criteria in Sections 15.50 and 15.501 and the procedures and remedies in Section 15.51 exclusive, and they preempt other law, including common law. In Texas the analysis starts and ends with the statute: a covenant that satisfies Section 15.50 and survives any reformation under Section 15.51 is the measure of enforceability, not older common-law reasonableness tests.

• Physician and Health Care Carve-Outs

  Physician non-competes must allow patient-list and records access, cap any buyout at the physician's total annual salary and wages, permit continuing care in an acute illness, and, effective September 1, 2025, expire within one year and stay within a five-mile radius (Section 15.50(b)); a physician covenant is void if the physician is discharged without good cause (Section 15.50(d)). Section 15.501 extends similar buyout, one-year, and five-mile limits to dentists, nurses, and physician assistants.

• Protect Trade Secrets With an NDA Too

  Because a non-compete must be reasonable and ancillary, many Texas employers also use a confidentiality or non-disclosure agreement under the Texas Uniform Trade Secrets Act (Civil Practice and Remedies Code Section 134A.001 et seq.). It protects trade secrets and customer data without a court testing the reasonableness of a non-compete, and giving an employee access to confidential information can also supply the consideration a Texas non-compete needs.