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 (typical: 6 months to 2 years), geographic area (typical: limited to the employee's actual sales territory or office reach), and scope of activity (typical: limited to the specific role or competing services the employee performed). Overbroad agreements are subject to judicial reformation under § 15.51, Texas courts narrow rather than void unreasonable agreements.
SB 1318 healthcare practitioner restrictions (eff. Sept. 1, 2025)
New § 15.501 imposes specific limits on noncompetes against healthcare practitioners, physicians, dentists, 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) patient access protections, including continuity of care and access to patient records; (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 permanently blocked by federal court injunction; the FTC abandoned its appeal in September 2025 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. Sophisticated employer practice involves: (1) tying the noncompete to a robust grant of confidential information at the start of employment; (2) drafting reasonable time, geographic, and scope limits; (3) including provisions for judicial reformation if a court finds the agreement overbroad; and (4) for healthcare employers, full SB 1318 compliance from September 1, 2025 forward.