Non-Compete Agreement Enforceability in Texas: A Founder's Guide After the FTC Ban Failed

For a brief window in 2024, it looked like the federal government was going to void every non-compete agreement in the country. The FTC's Non-Compete Clause Rule, finalized in April 2024, would have banned nearly all post-employment non-competes nationwide. Then a federal court in Texas struck it down. And in September 2025, the FTC officially abandoned its appeal, returning the entire question of non-compete enforceability to state law.

For Texas tech founders, that means the rules you need to understand are not federal—they're state-level, and they vary dramatically depending on where your employees live. If your startup is headquartered in Austin but you have engineers in California, the same restrictive covenant that might be enforceable in Texas could be void across state lines. This guide breaks down what the FTC rule would have done and why it failed, how Texas law treats non-competes, what you can actually enforce against departing employees, and how to draft agreements that survive judicial review.

We've written before about how FTC rules can be vacated but leave enforcement expectations intact, and the non-compete saga follows the same pattern: the rule is gone, but the legal landscape it created demands attention.

What the FTC Non-Compete Rule Would Have Done—and Why It Failed

In April 2024, the FTC issued its final Non-Compete Clause Rule under Section 5 of the FTC Act, which would have classified most post-employment non-compete agreements as unfair methods of competition. The rule would have made it unlawful for employers to enter into or enforce non-competes with workers, with a limited exception for senior executives under certain conditions. The rule was scheduled to take effect on September 4, 2024. (Harvard Law School Forum on Corporate Governance, Aug. 2024)

Before the rule could take effect, the U.S. District Court for the Northern District of Texas ruled in Ryan, LLC v. FTC that the FTC lacked statutory authority to promulgate the rule and that the rule was "arbitrary and capricious" in violation of the Administrative Procedure Act. The court set aside the rule nationwide on August 20, 2024. (Harvard Law School Forum on Corporate Governance, Aug. 2024)

The FTC initially appealed to the Fifth Circuit, but on September 5, 2025, the Commission voted to abandon its appeal and accede to the vacatur, effectively ending the federal rulemaking effort. The FTC withdrew its appeals in both Ryan, LLC v. FTC (5th Cir.) and Properties of the Villages v. FTC (11th Cir.) and agreed to vacate the rule. (Husch Blackwell, Sept. 2025)

However, the FTC has not walked away from non-compete enforcement entirely. On September 4, 2025—just one day before abandoning the rule—the FTC filed an enforcement action against Gateway Services, Inc., a pet cremation company, alleging that non-competes imposed on nearly all employees regardless of skill level constituted unfair methods of competition under Section 5 of the FTC Act. The FTC's Chairman signaled that the agency will pursue a "steady stream" of case-by-case enforcement actions using the Sherman Act's "rule of reason" analysis to define the boundaries of lawful non-compete agreements. (Husch Blackwell, Sept. 2025)

The practical takeaway for founders: there is no federal ban, but the FTC can still investigate and challenge non-competes that it views as anticompetitive. The primary framework governing enforceability, however, is now state law.

Texas's Non-Compete Framework: The "Reasonable" Standard

Texas is one of the states that permits non-compete agreements, but only under specific conditions. The governing statute is Texas Business & Commerce Code § 15.50, which sets out the criteria for enforceability. Understanding these requirements is essential for any Texas startup that wants to protect its competitive position when key employees leave.

Ancillary to an Otherwise Enforceable Agreement

Section 15.50(a) provides that a covenant not to compete is enforceable only if it is "ancillary to or part of an otherwise enforceable agreement at the time the agreement is made." This is the first gate every Texas non-compete must pass. (Tex. Bus. & Com. Code § 15.50(a))

In practical terms, this means your non-compete cannot stand alone. It must be embedded in a broader agreement that is independently enforceable—typically an employment agreement, a confidentiality agreement, or a stock option or equity grant agreement. If the underlying agreement fails for some reason (for example, if it lacks consideration), the non-compete fails with it. For startups granting equity to early employees, tying the non-compete to the equity grant agreement is a common and effective approach, because the equity grant itself provides independent consideration and enforceability.

Duration, Scope, and Geographic Reach

Even if the non-compete is ancillary to an enforceable agreement, it must contain "limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee." (Tex. Bus. & Com. Code § 15.50(a))

Texas courts have not set bright-line rules for what constitutes "reasonable" duration or geographic scope—these are fact-specific determinations. However, some general principles apply:

• Duration: For most tech employees, courts tend to view one to two years as reasonable. Durations exceeding two years face increasing scrutiny, especially for non-executive employees. The duration must correspond to the time it takes to replace the employee's function and for the employer's protected interests to dissipate.
• Geographic scope: For a local services company, a city or metro-area restriction may be reasonable. For a SaaS startup with a national customer base, a nationwide restriction may be defensible—but only if the restriction is narrowly tied to the markets where the company actually operates or has concrete plans to enter. Blanket restrictions with no connection to the employer's actual business footprint are routinely struck down.
• Scope of activity: The restriction must be limited to the type of work the employee actually performed. A non-compete that bars a software engineer from working in "any technology company" is overbroad. A restriction that bars them from working for a direct competitor in the same product category is more likely to survive.

Critically, Texas courts apply a "reformation" doctrine under Section 15.51 of the Texas Business & Commerce Code. If a court finds a non-compete overbroad, it can reform the agreement to make it reasonable rather than voiding it entirely. This is a significant advantage over states like California, where courts simply void non-competes. (Tex. Bus. & Com. Code § 15.50–15.51)

Non-Solicitation vs. Non-Compete: What's Actually Enforceable

For many tech startups, non-solicitation agreements are more valuable—and more enforceable—than non-competes. The distinction matters because courts view non-solicitation clauses as less restrictive on employee mobility.

A non-compete prevents a departing employee from working for a competitor or starting a competing business. A non-solicitation agreement prevents the employee from soliciting the employer's customers, clients, or other employees. Texas courts generally view non-solicitation agreements more favorably because they protect a specific, identifiable business interest (the employer's customer relationships) without broadly barring the employee from earning a living in their field. (Texas Non-Compete Law, "Non-Solicitation Agreements")

However, non-solicitation agreements in Texas are still subject to the same statutory framework under § 15.50. They must be ancillary to an otherwise enforceable agreement and reasonable in scope, duration, and geographic reach. A non-solicitation clause buried in an offer letter with no independent consideration may fail the "ancillary" test, while one embedded in a comprehensive employment agreement with meaningful consideration is more likely to hold up.

For startups, the practical strategy is often to layer protections: use a narrowly tailored non-compete for key employees with access to core intellectual property or trade secrets, and use non-solicitation agreements more broadly across the team to protect customer relationships and prevent poaching of colleagues. NDAs and trade secret protections under the Texas Uniform Trade Secrets Act provide an additional layer that courts and regulators have consistently endorsed as less-restrictive alternatives. (Husch Blackwell, Sept. 2025)

The California Problem for Remote Workforces

If your Texas startup hires remote employees in California, you face a fundamental compliance problem. California's approach to non-competes is diametrically opposed to Texas's.

California Business & Professions Code § 16600 provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The statute was amended in 2023 to expressly state that it "shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy an exception in this chapter." (Cal. Bus. & Prof. Code § 16600(a)–(b))

The exceptions are narrow: non-competes in connection with the sale of a business, non-competes in connection with the dissolution of a partnership or LLC, and non-competes necessary to protect trade secrets under the narrow "narrow restraint" doctrine (which California courts have largely rejected). For an at-will employment relationship, non-competes are essentially unenforceable in California—no matter how reasonable they might seem under Texas law.

This creates a trap for Texas startups with remote workforces. You might assume that because your company is headquartered in Texas, Texas law governs your employment agreements. But California courts have consistently held that California law applies to employment relationships for California residents, regardless of choice-of-law provisions in the contract. A choice-of-law clause designating Texas law will likely be unenforceable against a California-based employee if the result would deprive the employee of protections under California's non-compete statute.

The compliance strategy for multi-state startups is to tier your restrictive covenants by jurisdiction. For Texas-based employees, use non-competes that comply with § 15.50. For California-based employees, drop the non-compete entirely and rely on NDAs, trade secret protections, and narrowly tailored non-solicitation agreements that do not "restrain" the employee from engaging in a profession. As we discussed in our guide to Texas regulatory compliance for startups, multi-jurisdiction compliance requires understanding where each employee's protections originate—not assuming your home-state rules travel with you.

Drafting Non-Competes That Survive Judicial Review

The difference between a non-compete that holds up in court and one that gets thrown out often comes down to drafting. Here is what we recommend for Texas tech startups:

1. Embed the non-compete in a broader enforceable agreement. Do not use a standalone non-compete document. Tie the covenant to an employment agreement, equity grant, or comprehensive confidentiality and IP assignment agreement that is independently enforceable and supported by adequate consideration.
2. Define the protected interest specifically. Identify what you are protecting: trade secrets, customer relationships, proprietary technology, confidential business strategies. A non-compete that says "to protect the company's legitimate business interests" without specifying what those interests are invites judicial skepticism.
3. Limit duration to what is necessary. For most startup employees, one year is defensible. For executives or employees with deep access to trade secrets, up to two years may be reasonable. Anything longer needs a compelling, fact-specific justification.
4. Tie geographic scope to actual operations. If you serve customers in Texas and the Southwest, a five-state restriction may be reasonable. If you are a SaaS company with a national user base, a nationwide restriction tied to direct competitors may be defensible—but document why the scope is necessary.
5. Narrow the scope of restricted activity. Bar the employee from working for direct competitors in the same product category—not from "any technology company" or "any business related to technology." The more specific the restriction, the more likely it survives.
6. Include a reformation clause. Expressly state that if any provision is found to be overbroad, the court should reform it to the maximum extent enforceable rather than voiding it. While Texas courts can reform under § 15.51 even without this clause, including it signals good faith and gives the court a clear instruction.
7. Layer with non-solicitation and NDA protections. Use non-solicitation clauses to protect customer relationships and employee teams. Use NDAs and trade secret agreements to protect confidential information. These alternatives are more likely to survive scrutiny and, as the FTC has noted, are viewed as less-restrictive alternatives that regulators favor. (Husch Blackwell, Sept. 2025)
8. Individualize for each employee. The FTC's Gateway Services enforcement action targeted a company that applied non-competes to nearly all employees "without any individualized consideration of an employee's role." Tailor your non-competes to the employee's actual access to protected information and their actual competitive threat—not as a blanket policy. (Husch Blackwell, Sept. 2025)
9. Account for multi-state workforce issues. For employees outside Texas, evaluate the non-compete laws of their home state. Do not assume Texas law will govern. Create jurisdiction-specific addenda where necessary.

Actionable Next Steps

1. Audit your existing employment agreements. Review every non-compete, non-solicitation, and NDA provision across your team. Are they tied to enforceable underlying agreements? Are the durations and scopes reasonable? Are they individualized to each employee's role and access level?
2. Map your workforce by state. Identify where every employee subject to a restrictive covenant actually resides. For California residents (and residents of other non-compete-restrictive states like Oklahoma, North Dakota, and Minnesota), confirm that your agreements do not include unenforceable non-compete provisions that could create compliance risk.
3. Restructure your restrictive covenant stack. Move from a single non-compete to a layered approach: NDAs for all employees, non-solicitation for customer-facing roles, and narrowly tailored non-competes only for employees with genuine access to trade secrets or strategic competitive intelligence.
4. Update your equity grant agreements. If you are issuing stock options or restricted stock to new hires, ensure the equity agreement includes appropriate restrictive covenants that satisfy the "ancillary to an otherwise enforceable agreement" requirement under Texas law.
5. Build a departure protocol. When an employee resigns, have a checklist that includes: reminding the employee of their restrictive covenants, recovering company devices and credentials, disabling access to proprietary systems, and documenting the employee's access to trade secrets in case enforcement becomes necessary.
6. Get legal review before you scale. The cost of having counsel draft or review your restrictive covenant agreements is a fraction of what you will spend litigating an unenforceable non-compete—or defending against an FTC enforcement action. Bring counsel into your hiring process before the agreements are signed, not after a key employee walks out the door.

The FTC's non-compete ban is over, but the legal landscape it briefly disrupted is more complex than what came before. For Texas founders, the return to state law is an opportunity to build restrictive covenant agreements that are tailored, defensible, and aligned with how courts actually enforce them. The startups that get this right will protect their competitive position without exposing themselves to the regulatory and litigation risks that come with overbroad, one-size-fits-all non-competes.