Noncompete Agreement / Covenant Not to Compete
A contractual restriction prohibiting an employee, after employment ends, from competing with the former employer within a specified geographic area, time period, and scope of activity. SB 1318 (eff. Sept. 1, 2025) added new restrictions for healthcare practitioners.
A noncompete agreement (or "covenant not to compete") is a contractual restriction prohibiting an employee, after employment ends, from competing with the former employer within a specified geographic area, time period, and scope of activity. Texas enforces noncompetes under a specific statutory framework that diverges from common-law principles in many other states.
General enforceability standard
Under § 15.50(a), a noncompete is enforceable if (1) it is "ancillary to or part of an otherwise enforceable agreement" at the time the agreement is made; and (2) it contains limitations on time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than necessary to protect the goodwill or other business interest of the promisee.
The "otherwise enforceable agreement" requirement
The noncompete cannot stand alone, it must accompany a separate enforceable agreement. Under Light and Mann Frankfort, the underlying agreement most commonly involves the employer's promise to provide the employee with confidential information, trade secrets, or specialized training. Continued at-will employment alone is insufficient consideration. Under Marsh USA, stock option grants and similar equity-based consideration also satisfy the requirement, broadening the universe of enforceable noncompete structures.
Reasonableness
Texas courts evaluate three reasonableness dimensions: time, geographic area, and scope of activity, each measured against what is necessary to protect the goodwill or other business interest of the employer (§ 15.50(a)). Overbroad agreements are subject to judicial reformation under § 15.51(c), Texas courts narrow rather than void unreasonable agreements. After reformation, the court may not award damages for a breach that occurred before reformation, and relief is limited to an injunction. In a personal-services agreement, the employee may also recover costs and attorney's fees if the employer knew the limits were unreasonable when the agreement was signed and sought to enforce them beyond what was necessary.
SB 1318 healthcare practitioner restrictions (eff. Sept. 1, 2025)
SB 1318 amended the physician rules in § 15.50(b)-(d) and added § 15.501, which covers licensed dentists, professional or vocational nurses, and physician assistants. Among the requirements: (1) for physicians, geographic restrictions limited to a five-mile radius from primary practice location; (2) maximum one-year duration; (3) buyout cap not exceeding the practitioner's annual salary; (4) for physicians only, access to patient lists and medical records and continuing care for acute illness (§ 15.50(b)(1), (3)); (5) for non-physician practitioners, similar structural limits but without the "good cause" termination protection. Amended § 15.52 confirms that §§ 15.50, 15.501, and 15.51 are exclusive, preempting common-law alternatives.
Federal context
The FTC's April 2024 noncompete ban was set aside by a federal district court, which held that the FTC lacked authority to issue it. In September 2025 the FTC voted to dismiss its appeal and accede to vacatur of the rule, and shifted to industry-by-industry case enforcement. Texas-law analysis controls for nearly all Texas-based employment noncompetes.
Texas's noncompete framework is more employer-friendly than most states' frameworks but is not unlimited. Disputes often turn on what the covenant is tied to, such as the employer's promise of confidential information or specialized training under Light and Mann Frankfort, and on whether its time, area and activity limits go further than needed (§ 15.50(a)). A court that finds a limit overbroad reforms it rather than striking the covenant (§ 15.51(c)). Covenants with physicians, dentists, nurses and physician assistants also face the SB 1318 limits in §§ 15.50(b) and 15.501, effective September 1, 2025.