Texas Non-Competes: What Employers Can Enforce After Recent Case Law

The FTC tried to ban them, and lost. On August 20, 2024, a federal judge in the Northern District of Texas struck down the FTC's sweeping Non-Compete Rule, holding that the agency had exceeded its statutory authority. The FTC voted to abandon its appeals in September 2025 — leaving non-compete law exactly where it has always been: in the hands of the states.

That outcome matters more in Texas than almost anywhere else. Roughly 38% of U.S. workers have been subject to a non-compete at some point in their career, but estimates place Texas well above the national average, with more than half of workers covered. For startup founders building teams and for the attorneys advising them, that means the enforceability questions haven't gone away — they've just stayed local. What follows is a plain account of where Texas law stands after recent case law, and what agreements courts will actually uphold.

The Texas Framework: Business & Commerce Code §15.50

Texas has one statute that governs non-compete enforceability, and every challenge runs through it. Section 15.50(a) of the Texas Business & Commerce Code provides that a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement and contains limitations on time, geographical area, and scope of activity that are reasonable and do not impose a greater restraint than necessary to protect the promisee's goodwill or other business interest. That last phrase is not window dressing — it is the operative limit. Texas law does not permit employers to use non-competes as a shield against ordinary competition; the restrictions must map to something the employer actually has a legitimate interest in protecting, such as trade secrets, confidential information, customer goodwill, or the value of specialized training provided to the employee.

Courts have distilled §15.50(a) into a working three-part test. First, the agreement containing the covenant must itself be enforceable — meaning there must be real consideration, not a hollow promise. Second, the non-compete must be ancillary to that enforceable agreement, which means it cannot stand alone as a pure restriction on competition. Third, the time, geography, and activity limitations must be reasonable in scope. An agreement that clears all three gates is presumptively enforceable; one that fails any single element can be reformed or voided by the court.

The Biggest Trap: What 'Ancillary to an Otherwise-Enforceable Agreement' Actually Means

The phrase "ancillary to an otherwise-enforceable agreement" is where most Texas non-competes die. Employers assume the employment relationship itself is the anchor. It isn't. The Texas Supreme Court made that clear in Light v. Centel Cellular Co. (1994), holding that when illusory promises are all that support a purported bilateral contract, there is no contract. A bare at-will offer letter — where the employer reserves the right to terminate at any moment for any reason — gives the employee nothing enforceable in exchange for the restriction. Courts read those agreements as one-sided and unenforceable from day one.

The 2006 decision in Alex Sheshunoff & Co. v. Johnson softened that rule in a way that matters practically. A non-compete embedded in an at-will agreement can become enforceable after signing if the employer actually performs — meaning it delivers the training, access to clients, or confidential information that the agreement promised. The contract doesn't need to be enforceable at execution; it needs to be anchored by real performance. That shift moves the analysis from contract formation to conduct, which gives employers a path forward even when the original paperwork was imperfect. But it also creates risk: if the employer never delivers the promised benefit, the restriction remains unenforceable regardless of how the agreement reads.

For startup and tech employers, the most reliable anchor is a standalone confidentiality or trade secret agreement — one that is not illusory because it creates a mutual, enforceable obligation at signing. Courts consistently recognize that protecting employer-specific confidential information justifies the restriction and satisfies the "ancillary" requirement. Equity grants are a strong second option: in Marsh USA Inc. v. Cook (2011), the Texas Supreme Court held that stock options constitute valid consideration for a non-compete, which is directly relevant to any startup issuing options to key employees. The practical takeaway is to pair the non-compete with at least one of these anchors — a confidentiality agreement, a trade secret protection clause, or a documented equity grant — rather than relying on employment alone.

What "Reasonable" Means in Texas Courts

Texas courts evaluate non-competes against three independent dimensions: duration, geographic scope, and the scope of restricted activities. Each dimension has its own failure mode, and a restriction that is too broad on any single axis can get the entire covenant reformed or voided. The operative standard comes from the Texas Covenants Not to Compete Act, but what courts actually do with that standard has been sharpened by a run of recent decisions.

Texas courts applying §15.50 have consistently held that activity restrictions must be proportionate to the employee's actual role. The foundational principle — applied in decisions including CRS-Evans Pipeline International, Inc. v. Myers, 927 S.W.2d 259 (Tex. App.—Houston [1st Dist.] 1996) — is that a prohibition on working "in any capacity" for a competitor is overbroad when the employee's role was narrowly defined. The statute's "no greater than is necessary" standard applies to activity scope just as rigorously as to geography or duration: if the employee only managed regulatory submissions, a blanket bar on the entire pharmaceutical industry goes further than necessary to protect any legitimate interest the employer can identify.

Geography is the dimension most employers get wrong by default. Texas practitioners consistently note that the restricted territory must correspond to where the employee actually worked, not to the employer's full market. Hipps v. CBRE, Inc. (2024) illustrates where that principle cuts against even senior employees: a trial court initially granted a TRO enforcing a worldwide non-compete against a Dallas-based managing director, but the appellate court reversed, finding an abuse of discretion even though the employee held national-level responsibilities. Scope follows function — and the appellate result confirms that Texas courts will not defer to a senior title when the geographic restriction outpaces actual territory.

The Reformation Doctrine: Courts Rewrite, Not Void

Texas takes an unusual approach to overbroad non-competes: courts fix them rather than discard them. Under Tex. Bus. & Com. Code §15.51(c), when a court finds that a covenant's limitations are unreasonable, it shall reform the agreement to the extent necessary to make it enforceable — it does not simply void the covenant. From an employer's perspective, this sounds like a safety net. It is not a free one.

The cost of over-drafting is concrete: when a court reforms an overbroad non-compete, the employer forfeits the right to recover attorneys' fees and monetary damages for any breach that occurred before reformation. The court's remedy is limited to injunctive relief going forward. An employer who writes an aggressive, unenforceable restriction and then sues for damages walks into litigation carrying the full financial risk — legal fees without a damages award to offset them.

Reformation is not reserved for the end of trial. The Fifth Circuit held in Calhoun v. Jack Doheny Companies (5th Cir. 2020) that courts can reform a covenant at the preliminary injunction stage, meaning the rewrite can happen before discovery is complete. As a practical matter, courts most often reform geographic scope or the scope of restricted activities; duration tends to receive independent judicial scrutiny before those other variables are adjusted.

The 2025 legislative session signals that reformation has a ceiling even in Texas. SB 1318, effective September 1, 2025, imposes hard caps on physician non-competes — a maximum five-mile radius, a maximum one-year duration, and automatic voidance on involuntary discharge without good cause. The physician carve-out is a clear signal that the legislature is willing to override reformation entirely in regulated sectors where bargaining imbalances are acute.

Recent Cases and Legislative Developments (2023–2025)

The past two years have reshuffled the legal landscape for Texas non-competes in ways that matter both nationally and within the state. The biggest headline — the FTC's proposed nationwide ban on non-competes — turned out to be a short-lived threat. In Ryan LLC v. FTC, the Northern District of Texas set aside the FTC's non-compete rule in August 2024, holding that the agency lacks statutory authority under Section 6(g) of the FTC Act to issue a blanket prohibition. The FTC abandoned its appeal in September 2025, closing the door on federal preemption. For Texas employers, the practical takeaway is clear: state law governs, and Texas's enforceability framework remains intact.

Texas's legislature moved independently on one high-stakes category. Effective September 1, 2025, SB 1318 substantially tightened physician non-compete restrictions. Physician agreements are now capped at one year in duration and a five-mile radius from the physician's primary practice location. Employers must also provide buyout rights for patients with chronic conditions and cannot withhold medical records from departing physicians. Critically, any physician non-compete becomes void and unenforceable if the physician is involuntarily discharged without good cause — a provision with real teeth for hospital systems and multi-provider practices that routinely terminate physicians in workforce reductions.

Hipps v. CBRE, Inc. (2024) illustrates a different trend at the appellate level. There, a trial court initially granted a TRO enforcing a worldwide non-compete against a Dallas-based managing director — a senior executive by any measure. The appellate court reversed, finding an abuse of discretion and signaling that Texas courts will scrutinize nationwide geographic scope even when the employee held a high-ranking role. Taken together, Ryan, SB 1318, and Hipps point in the same direction: federal intervention is off the table, but Texas courts and the legislature are tightening the screws on overreach from within.

Practical Drafting Guidance for Texas Employers

Understanding what courts enforce is only half the job. The other half is drafting an agreement that survives a motion to dissolve a TRO at 9 a.m. on a Monday morning, when you need it most. The following checklist reflects the structural requirements Texas courts consistently apply — skip any element and you risk the whole agreement failing at the threshold enforceability inquiry.

1. Anchor the agreement to a legitimate protectable interest. The non-compete must be part of an otherwise enforceable agreement that includes a confidentiality or trade-secret clause, an equity grant, or another identifiable business interest. A standalone non-compete with no such anchor fails before the court even reaches scope.
2. Name the protected interest specifically. Vague references to "business interests" or "proprietary information" invite challenge. Identify the actual interest — customer relationships, specialized training, specific trade secrets — so a court can evaluate proportionality.
3. Set geography to the employee's actual territory. The geographic scope should map to where the employee actually worked and had customer contact. A salesperson covering the Austin metro does not support a Texas-wide restriction, let alone a nationwide one.
4. Cap time at 24 months or less. Two years is the practical ceiling Texas courts accept without significant pushback. Longer terms invite reformation or outright denial of injunctive relief.
5. Include a savings and reformation clause. Texas courts will narrow an overbroad non-compete rather than void it — but a well-drafted savings clause preserves your injunctive relief even when a court trims the scope.
6. Use fresh consideration for mid-employment agreements. If you are rolling out or updating non-competes for existing employees, continued employment alone is not sufficient consideration under Texas law. A promotion, expanded responsibilities, or an equity grant — such as the stock option grants approved in Marsh USA Inc. v. Cook — provides the required independent consideration.

One drafting decision worth reexamining for most startups: whether you need a full non-compete at all. A non-solicitation clause covering only the customers an employee actually serviced is harder to challenge, easier to enforce, and sufficient to protect client relationships in the majority of cases. If your core concern is preventing a departing sales rep from immediately calling your ten best accounts, a targeted non-solicitation agreement is the lower-risk tool — reserve the full non-compete for roles where the employee's entire market presence creates the competitive threat.

Actionable Next Steps

1. Audit your existing agreements against the three-part test. With the FTC non-compete rule permanently set aside, Texas state law is the only framework that matters. Pull every active non-compete and confirm it satisfies the ancillary-to-an-otherwise-enforceable-agreement requirement, contains reasonable geographic and time limits, and is tied to a protectable interest.
2. Healthcare employers: flag every agreement that renews on or after September 1, 2025. Under SB 1318, physician, dentist, nurse, and PA non-competes that renew on or after that date are subject to the new statutory limits — including mandatory buyout rights and caps on restricted activities. Agreements that never renew remain on the old framework, but any automatic renewal clause triggers the new rules.
3. Redraft agreements that fail either standard. An unenforceable covenant is often worse than none — it gives employees false assurance while courts refuse to enforce it. Use the audit findings to identify clauses that need narrowing, and update your confidentiality and restrictive covenant templates at the same time.
4. Train managers on what you can and cannot do at separation. Enforceability starts before litigation. Supervisors who understand the limits are less likely to make over-broad verbal promises — or threats — that create liability.