Are Non-Compete Agreements Banned in Texas?

Last year in April, the Federal Trade Commission (FTC) published a rule to ban most non-compete agreements nationwide. Within hours, the rule was challenged in courts across the country. After months of federal litigation and a change in leadership, the FTC abandoned its legal battle and instead pivoted its focus to enforcing existing regulations.

While unfair labor market practices, including overly restrictive non-compete agreements, are still at risk of FTC enforcement actions, non-compete agreements themselves are not banned at the federal level.

What Is the Current Status of Non-Compete Agreements in Texas?

Non-compete agreements, often included as a provision in employment agreements, remain legal and enforceable in Texas as long as they meet certain requirements.

To be enforceable in Texas:

• The non-compete agreement must be "ancillary to or part of an otherwise enforceable agreement" (typically an employment agreement or business sale agreement)
• The employer must provide “consideration”, i.e., something in return, such as confidential information or specialized training to the employee
• The restrictions must be reasonable in time period (typically 1-2 years is acceptable; 5+ years often fails); geographic scope (must match where the employer actually does business); and scope of activity (can't be broader than necessary to protect legitimate interests)

While many states have banned or are considering legislation to ban non-compete agreements, the Texas legislature is not likely to pass any such legislation.

Texas HB 4067 to Ban Non-Competes

In March, Texas Representative Christina Morales of Harris County introduced Texas House Bill 4067 (HB 4067), which seeks to prohibit most noncompete agreements in Texas.

The bill is modeled after the FTC’s now-abandoned federal rule and would prohibit non-compete agreements for all workers, except senior executives. The legislation includes notable exceptions for business sales or ownership interest transactions to maintain protection for business purchasers.

The bill will likely die in committee or be significantly amended to preserve some form of non-compete agreements, perhaps with more restrictions than current law but stopping short of a complete ban. Texas tends to favor incremental reforms over sweeping changes to business practices.

Do Non-Competes Hold Up in Texas Courts?

Texas courts do enforce non-compete agreements, but they apply strict scrutiny and will find them unenforceable if they’re overly broad.

Common reasons Texas courts strike down non-compete agreements include:

1. No Consideration: If the employer doesn't actually provide confidential information or specialized training, courts often void the agreement. At-will employment, a pay raise, or bonus are typically not considered sufficient consideration in Texas.
2. Overbroad Geographic Scope: "Anywhere in Texas" or "United States" often fails unless the employer truly operates that broadly
3. Industry-Wide Bans: Prohibiting work in an entire industry rather than with specific competitors

The "Reformation" Wild Card: Texas Courts Can Rewrite Overbroad Non-Competes

In Texas, employment non-competes are governed by the Texas Covenants Not to Compete Act, which states that if a non-compete covenant is found to be unreasonably overbroad, “the court shall reform the covenant to the extent necessary to cause” the covenant to be reasonable.

This requires courts to reform, or rewrite, overbroad non-competes to make them reasonable rather than void them entirely.

Texas courts don’t just strike unenforceable provisions; they must actively rewrite the agreement to make it enforceable. And if courts do reform an agreement to make it enforceable, the employer can no longer seek to recover attorneys’ fees per Texas law.

Bottom Line: “Reasonable” Non-Compete Agreements Are Enforceable in Texas

While Texas is more employer-friendly than states like California (which bans non-competes entirely), Texas courts regularly refuse to enforce overreaching non-competes. Courts are particularly skeptical of non-competes for lower-wage workers.

That said, non-compete agreements are legal and enforceable in Texas if they are:

• Reasonable in scope, time, and geography;
• In exchange for consideration; and
• In conjunction with an otherwise enforceable agreement.

Our law firm routinely pursues and defends legal action to enforce these agreements.

Ready to learn more about the enforceability of non-compete agreements in Texas? Explore our in-depth guide to non-compete agreements in Texas, including FAQs.