Texas Restrictive Covenant Statute
Tex. Bus. & Com. Code §§ 15.50-15.52, the exclusive Texas statutory framework for enforcement of covenants not to compete. Section 15.50 sets enforceability criteria (ancillary to enforceable agreement; reasonable in time, geography, scope). Section 15.51 governs procedures, requires reformation of overly broad covenants, and provides fee shifting in some cases. Section 15.52 preempts common-law alternatives. Marsh USA v. Cook (Tex. 2011) substantially relaxed the framework; post-Marsh covenants are increasingly enforceable.
Tex. Bus. & Com. Code §§ 15.50-15.52, the Texas Restrictive Covenant Statute, provides the exclusive framework for enforcement of covenants not to compete in Texas. Section 15.50 sets the enforceability criteria. Section 15.51 governs procedures, requires reformation of overly broad covenants, and provides fee shifting in some cases. Section 15.52 preempts common-law alternatives. The framework was substantially relaxed by Marsh USA v. Cook, 354 S.W.3d 764 (Tex. 2011); post-Marsh covenants are increasingly enforceable in Texas, contrary to the doctrine's earlier reputation as a "covenant graveyard."
The Section 15.50 framework
Section 15.50(a) establishes the enforceability criteria: a covenant not to compete is enforceable if it is "ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains 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." The two-part test: (1) "ancillary to or part of an otherwise enforceable agreement"; (2) reasonable in time, geography, and scope.
The "ancillary to" requirement, Marsh evolution
The "ancillary to" requirement has evolved substantially: (1) Light era (pre-2006), required simultaneous exchange of consideration; non-competes ancillary to at-will employment generally void; (2) Sheshunoff (2006), permitted "unilateral promises" (employer's promise to provide confidential information that ripens into binding obligation when fulfilled); (3) Marsh (2011), substantially relaxed: covenant must be "supplementary or part of" an otherwise enforceable agreement; the agreement must be "reasonably related to the interest worthy of protection" (goodwill, confidential information, customer relationships). Post-Marsh, stock-option grants, equity awards, and other consideration types support non-competes in many circumstances. Most modern Texas non-competes structured around equity grants, confidential information disclosure, or specialized training satisfy the ancillary requirement.
Reasonableness analysis
The reasonableness analysis examines time, geography, and scope: (1) time, typically 1-3 years post-employment; longer periods harder to defend; (2) geography, must be reasonably tied to where employee performed work or had customer contact; nationwide covenants difficult to enforce; (3) scope of activity, must be limited to the activities performed for the employer or competitive business; broad "any competing business" language frequently overbroad. The standard: "no greater restraint than is necessary to protect the goodwill or other business interest of the promisee."
The reformation requirement
Section 15.51(c) requires reformation of overly broad covenants, Texas courts must reform unreasonable covenants to the extent necessary to make them reasonable, rather than refusing to enforce them entirely. Calhoun v. Jack Doheny (5th Cir. 2020) confirmed reformation can occur at the preliminary injunction stage. Reformation is a substantial advantage for employers, even overbroad covenants generally produce some enforceable scope. However, § 15.51(c) provides that if the original covenant was overly broad and the employer "sought to enforce the covenant to a greater extent than was necessary," the court may award the defendant employee reasonable attorney's fees incurred in defending the action. Fee shifting is rare but creates risk for aggressive employer enforcement strategies.
Burden of proof allocation
Section 15.51(b) allocates burdens based on agreement purpose: (1) personal services agreements (employment), promisee (employer) bears burden of establishing § 15.50 criteria; (2) other agreements (sale of business, partnership exit), promisor bears burden of establishing covenant does not meet criteria.
Physician covenants, § 15.50(b)
Section 15.50(b) provides specific framework for physician non-competes: enforceable only if covenants do not deny physician access to patient list; provide access to patient medical records; provide for buy-out at reasonable price; permit continuing care for acute illness even after termination.
Section 15.52 preemption
Section 15.52 preempts common-law alternatives: the criteria and procedures provided by §§ 15.50-15.51 are "exclusive and preempt any other criteria for enforceability of a covenant not to compete or procedures and remedies in an action to enforce a covenant not to compete under common law or otherwise." Texas covenant enforcement is exclusively statutory.
FTC noncompete ban, current status
The FTC issued a final rule in April 2024 attempting to ban most non-compete agreements nationwide. The rule was challenged and a federal district court vacated it in August 2024. Current federal landscape: the FTC ban is not in effect; state-law frameworks continue to govern. Texas employers should rely on the state-law framework while monitoring federal developments.
For Texas employers, the post-Marsh framework substantially supports non-compete enforcement when properly structured. Best practice: (1) tie covenants to confidential information access, equity grants, or specialized training; (2) draft reasonable scope, 1-2 years post-employment, geography matching actual customer contact, scope limited to actual competitive activities; (3) include severability and reformation language; (4) coordinate with confidentiality agreements and trade-secret protections; (5) for physicians, comply with § 15.50(b) requirements; (6) avoid overbroad initial drafting, fee-shifting risk under § 15.51(c). For employees: (1) review covenant scope before signing, overbroad covenants are reformed but not voided; (2) document the actual scope of work and customer contact for later geography/scope challenges; (3) understand that Texas reformation creates uncertainty. Common drafting failure: nationwide or "any competing business" scope, almost always reformed substantially narrower, with potential fee-shifting.