Texas Non-Compete Agreements After the 2025 Amendments

One of our employees is leaving for a competitor. Our agreement with her has a non-compete. Is it still enforceable in Texas?

Short answer: probably, if it was drafted properly — but the rules changed in 2025 for anyone in health care, and a lot of what people heard in 2024 about a federal “ban” never came to pass. Here’s where things stand.

The basics haven’t changed. Texas has a statute for this, the Covenants Not to Compete Act (Tex. Bus. & Com. Code §§ 15.50–.52). It says a non-compete is enforceable if two things are true. First, it has to be part of some other valid agreement — in practice, that usually means the employer gave the employee something in exchange, like confidential information or specialized training, that the non-compete is designed to protect. Second, its limits on time, geography, and the kind of work restricted have to be reasonable and no broader than needed to protect the employer’s goodwill or business interests. The Supreme Court of Texas has applied that test in cases like Alex Sheshunoff Management Services v. Johnson (2006) and Marsh USA v. Cook (2011), and those cases still control.

One feature of Texas law surprises people: if a non-compete is too broad, it isn’t thrown out. The statute tells the court to rewrite it down to reasonable limits. The catch is that an employer who needs the court to do that rewriting may lose the right to collect damages for anything that happened before the fix (§ 15.51(c)). So a carefully drafted covenant is worth more than an aggressive one.

The federal ban that never happened. In April 2024 the Federal Trade Commission adopted a rule that would have wiped out nearly every employment non-compete in the country. If you heard that non-competes were “going away,” that’s what it was about. It never took effect. A federal court in Dallas set it aside before its start date, holding the FTC didn’t have the authority to issue it (Ryan, LLC v. FTC, N.D. Tex. 2024). The FTC appealed, then gave up the appeal in September 2025, and in February 2026 it formally removed the rule from the books. The agency says it may still go after particular non-competes one at a time, and it has done so at least once. But there is no federal rule overriding Texas law. If you’re asking whether a Texas non-compete is enforceable, the answer comes from the Texas statute.

What did change: health care. The real news is a Texas law, Senate Bill 1318, which took effect September 1, 2025. Texas has long had special rules for physician non-competes — a doctor had to be able to buy out of the covenant at a “reasonable price,” keep access to patient records, and continue treating patients mid-course. SB 1318 kept those and added hard limits. For a physician non-compete signed or renewed on or after September 1, 2025:

•           It can’t last more than one year after the contract or employment ends.

•           It can’t cover more than a five-mile radius from where the physician primarily practiced.

•           The buyout can’t cost more than the physician’s total annual salary and wages at the time of termination — no more arguing over what a “reasonable price” is.

•           The terms have to be clearly and conspicuously stated in writing.

And if a physician is let go without “good cause” — meaning a reasonable basis tied to the physician’s own conduct or performance — the non-compete is void.

The same one-year, five-mile, and salary-cap limits now apply to dentists, licensed nurses, and physician assistants under a new section of the statute (§ 15.501). Agreements signed before September 1, 2025 are still governed by the old rules until they’re renewed.

So what does this mean? A few observations, with the usual caveat that every agreement turns on its own language:

For most businesses, the picture looks about like it did a few years ago. If your non-compete is tied to real consideration and its limits are reasonable, Texas courts will generally enforce it, and will trim it rather than toss it if it reaches too far. The two 2013 posts on this blog still describe that framework accurately.

For medical practices, hospitals, dental offices, and anyone employing nurses or PAs, the 2025 limits appear to be ceilings the parties can’t contract around. A two-year term or a ten-mile radius in an agreement signed this year would seem to exceed what the statute allows. What counts as a “renewal,” and how courts will apply the “good cause” standard, are questions that will get worked out in litigation.

And for employers who stopped enforcing non-competes in 2024, or rewrote them, because the FTC rule looked imminent — it may be time to take another look.

This post updates our March 2013 posts, “Texas’s Covenant Not to Compete Statute” and “Covenants Not to Compete Must be Reasonable.”

Attorney’s Fees in Texas Contract Cases: The 2021 Amendment to Chapter 38

 

We won a breach-of-contract case against a limited liability company. Can we recover the attorney’s fees we spent doing it?

In 2016 this blog noted that Texas follows the “American Rule”: each side pays its own lawyers unless a statute or a contract provides otherwise. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310–11 (Tex. 2006); Epps v. Fowler, 351 S.W.3d 862, 865 (Tex. 2011). The most commonly invoked statute is Chapter 38 of the Civil Practice and Remedies Code, which permits a prevailing party to recover reasonable attorney’s fees on a claim for, among other things, breach of an oral or written contract. Tex. Civ. Prac. & Rem. Code § 38.001. That much has not changed. What has changed, and what the 2016 post did not address, is who can be made to pay.

For most of its history, § 38.001 allowed recovery “from an individual or corporation.” Beginning in the 2010s, Texas courts of appeals read those words literally and held that fees could not be recovered from entities that were neither — limited liability companies, limited partnerships, and limited liability partnerships among them. Fleming & Assocs., L.L.P. v. Barton, 425 S.W.3d 560, 574–76 (Tex. App.—Houston [14th Dist.] 2014, pet. denied); Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438, 452–55 (Tex. App.—Houston [14th Dist.] 2016, pet. denied); Choice! Power, L.P. v. Feeley, 501 S.W.3d 199, 213–14 (Tex. App.—Houston [1st Dist.] 2016, no pet.); First Cash, Ltd. v. JQ-Parkdale, LLC, 538 S.W.3d 189, 199–200 (Tex. App.—Corpus Christi–Edinburg 2018, no pet.). Because a large share of commercial defendants are organized as LLCs or partnerships, the practical effect was that a business could win its contract case outright and still absorb the entire cost of the litigation. The Supreme Court of Texas never took up the question, and the intermediate courts’ reading became the working rule.

The Legislature closed the gap in 2021. House Bill 1578, signed June 15, 2021, and effective September 1, 2021, amended § 38.001 so that a person may recover reasonable attorney’s fees “from an individual or organization.” Act of May 26, 2021, 87th Leg., R.S., ch. 665 (H.B. 1578). “Organization” carries the definition in § 1.002 of the Business Organizations Code, which includes corporations, limited liability companies, limited partnerships, limited liability partnerships, and most other business entities. The amended statute excludes a “quasi-governmental entity authorized to perform a function by state law,” a religious organization, a charitable organization, and a charitable trust. Tex. Civ. Prac. & Rem. Code § 38.001(a)–(b). The change applies to actions commenced on or after September 1, 2021; suits filed earlier remain governed by the prior text.

Two other features of Chapter 38 remain as they were and are worth restating. First, the statute requires presentment: the claim must be presented to the opposing party, and payment must not have been tendered within thirty days, before fees may be recovered. Id. § 38.002. Second, Chapter 38 authorizes fees only for a party that both prevails on a claim the statute covers and recovers damages on it. Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997); MBM Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 666 (Tex. 2009). The Supreme Court applied that requirement in June of this year in Champion Food Service, Inc. v. ProAlamo Foods, L.L.C., No. 25-0297 (Tex. June 19, 2026), where a fee award fell with the quantum meruit recovery on which it depended.

For a business considering suit on a contract, the 2021 amendment appears to remove what had been a significant asymmetry: a plaintiff suing an LLC or partnership on a contract filed after September 1, 2021, may now seek fees on the same footing as one suing a corporation. Whether fees are ultimately awarded will still depend on presentment, on prevailing, on recovering damages, and on proof that the amount sought is reasonable and necessary.

This post updates our April 2016 post, “When are attorney’s fees recoverable as part of a lawsuit.” See also our post on Champion Food Service v. ProAlamo Foods.

Proportional Indemnity After Settlement: S&B Engineers & Constructors, Ltd. v. Scallon Controls, Inc.

 We settled with the injured workers. Can we still recover from the subcontractor whose equipment failed?

The Supreme Court of Texas addressed that question in S&B Engineers & Constructors, Ltd. v. Scallon Controls, Inc., 734 S.W.3d 869 (Tex. 2026). Scallon supplied and programmed a fire-suppression system for a South Texas refinery under a purchase order with S&B, the contractor. In January 2015 the system lost power, a failsafe feature released the suppressant, and seven workers on scaffolding fell while trying to escape. The workers sued S&B and the refinery owner, but not Scallon. After four years of litigation, S&B and the owner settled; the settlement released them, did not mention Scallon, and was funded by S&B and the parties’ insurers. S&B and the owner’s insurer then sought to recover from Scallon its proportional share of the settlement under the purchase order. The trial court granted summary judgment for Scallon, and the court of appeals affirmed. 716 S.W.3d 590 (Tex. App.—Beaumont 2024). The Supreme Court reversed, five to four, and remanded.

The purchase order provided that Scallon would indemnify S&B for bodily-injury claims “to the extent of [Scallon’s] negligence or willful misconduct,” and that in the event of comparative negligence Scallon’s duty would be limited to “[Scallon’s] allocable share.” 734 S.W.3d at 873–74. Two lines of authority stood in the way. Under Beech Aircraft Corp. v. Jinkins, 739 S.W.2d 19, 21–22 (Tex. 1987), a defendant who settles resolves only its own proportionate share of liability and cannot pursue contribution from a non-settling party. And under Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705, 708 (Tex. 1987), a contract will not be read to indemnify a party for its own negligence unless it says so in specific terms. The court of appeals reasoned that S&B’s settlement necessarily covered only S&B’s negligence, so any recovery from Scallon would amount to indemnity for S&B’s own fault, which the clause did not provide.

The majority, in an opinion by Justice Young, concluded that neither case controlled. Jinkins addressed common-law and statutory contribution among joint tortfeasors and “did not discuss contractual risk allocation or even use the words ‘contract’ or ‘indemnification.’” Id. at 872. Proportional indemnity by agreement “differs fundamentally from common-law and statutory schemes for the basic reason that the parties bargained for and agreed to it,” id. at 874, and the Legislature has provided that contractual indemnification rights “shall prevail over” the comparative-responsibility statute. Tex. Civ. Prac. & Rem. Code § 33.017. As to Ethyl, the Court found the clause compliant precisely because it disclaimed any indemnity for S&B’s negligence and confined Scallon to its own share; “[t]here is nothing magical about the word ‘allocable,’” and any formulation that makes the indemnity proportional rather than entire will do. 734 S.W.3d at 876. The Court held that “neither Jinkins nor Ethyl nor any other legal principle precludes S&B and Sunoco from invoking their contractual indemnity rights,” while emphasizing that “[w]hether they are entitled to any indemnification, however, presents another question — one not before us today.” Id. at 872. On remand, the settling parties must show that the settlement was made in good faith for a reasonable amount and that some portion of the liability is attributable to Scallon’s negligence; a settling party that cannot prove either “cannot recover at all.” Id. at 877. The Court also held that the insurer’s subrogation claim was timely, because an indemnity claim accrues when the indemnitee’s liability becomes fixed and certain through settlement or judgment. Id. at 878.

Justice Bland, joined by Justices Lehrmann, Devine, and Huddle, dissented. In the dissent’s view, “[e]very dollar S&B paid was to settle S&B’s negligence, not Scallon’s,” id. at 881, and reading the word “allocable” to permit S&B to shift part of that payment to a party the plaintiffs never sued operates as an assignment of claims the plaintiffs never brought — the result Jinkins and State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996), were designed to prevent. The dissent also observed that S&B had not timely designated Scallon as a responsible third party and had not disclosed Scallon’s alleged fault in discovery; when S&B later sought to bring Scallon in, the plaintiffs objected because limitations had run. On that account, S&B “elected to buy peace at the cost of nullifying its indemnity rights,” and the Court “need not rescue S&B from its litigation strategy under the guise of contract interpretation.” 734 S.W.3d at 883. Finally, the dissent questioned the majority’s expectation that the post-settlement trial would be “streamlined,” comparing the settling defendant’s position as a “surrogate plaintiff” to the Mary Carter arrangements the Court declared void in Elbaor v. Smith, 845 S.W.2d 240 (Tex. 1992), and noting a pending case, Blanchard Refining Co. v. Industrial Specialists, LLC, No. 26-0118, in which such a trial reportedly ran seven days with thirty depositions. 734 S.W.3d at 884–86.

Several points may be worth noting. The decision appears to confirm that a settlement does not, by itself, extinguish a bargained-for right to proportional indemnity, so long as the clause disclaims indemnity for the indemnitee’s own negligence and is otherwise enforceable. It also makes clear that the right to sue is not a right to recover: the settling party carries the burden on both the reasonableness of the settlement and the non-settling party’s share of fault, and the majority acknowledges it “may receive no indemnification at all.” Id. at 877. The dissent’s account of S&B’s procedural choices suggests that a party expecting to rely on such a clause may want to designate the indemnitor as a responsible third party while the underlying case is pending, rather than after it settles. And the four-justice dissent, together with the pending Blanchard Refining matter, indicates that how these post-settlement trials are to be conducted — what evidence bears on reasonableness, and how the non-settling party may contest the underlying damages — remains to be worked out.

Rehearing was denied on June 5, 2026.

Quantum Meruit When a Contract Exists: Champion Food Service, Inc. v. ProAlamo Foods, L.L.C.

 

We delivered goods to a customer under an agreement, and the customer refused to pay part of the bill. Our contract claim failed at trial, but the jury awarded us the value of the goods anyway. Can we keep that award?

The Supreme Court of Texas took up a version of that question in Champion Food Service, Inc. v. ProAlamo Foods, L.L.C., No. 25-0297 (Tex. June 19, 2026). Two meat suppliers delivered frozen product to a distributor over several months, each shipment accompanied by an invoice reflecting price, quantity, and delivery terms. The distributor left roughly $73,000 in invoices unpaid, asserting the product had spoiled. The suppliers sued for breach of contract and, alternatively, in quantum meruit. The jury found no breach by the distributor, but found for the suppliers on quantum meruit and awarded about $46,000; it also found the suppliers’ reasonable attorney’s fees to be $0. The trial court disregarded the fee finding and awarded $219,674 in fees, and the court of appeals affirmed. The Supreme Court reversed and rendered judgment that the suppliers take nothing.

Quantum meruit is an equitable theory that allows recovery of the reasonable value of goods or services furnished and accepted when no enforceable agreement governs the transaction. Texas courts have long held that the theory is unavailable where a valid express contract covers the same subject matter. Woodward v. Sw. States, Inc., 384 S.W.2d 674, 675 (Tex. 1964); Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988); Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000); Hill v. Shamoun & Norman, LLP, 544 S.W.3d 724, 737 (Tex. 2018). Recognized exceptions exist — for work performed and accepted that falls outside the contract’s scope, and in certain partial-performance situations — but the Court found none of them implicated.

The opinion does not announce a new rule, but it does appear to sharpen how the existing one operates. The Court characterized the question whether a contract covers the goods or services at issue as a legal one, reviewed de novo, rather than a fact question implicitly resolved by a jury’s quantum meruit finding. Because the parties did not dispute that agreements on price, quantity, and delivery existed — agreements that suffice to form a contract under Texas Business and Commerce Code § 2.204 — the Court concluded those agreements covered the deliveries, and the quantum meruit award could not stand. The Court also addressed the suppliers’ argument that handwritten changes the distributor made on the invoices showed the deliveries fell outside any agreement. It reasoned that disputes over credits, price adjustments, or the quality of goods concern breach and damages, not the existence of a contract, offering the example of a customer who crosses out the price on a bakery receipt: the bakery’s remedy lies in contract, not in equity. Finally, the Court observed that “when the existence or scope of a contract is in dispute, the jury should be asked whether a contract exists” — an indication that a plaintiff wishing to preserve quantum meruit as a genuine alternative may need to secure a jury finding on that threshold question rather than rely on the equitable finding alone.

With the quantum meruit recovery gone, the attorney’s fees followed. Recovery under Chapter 38 of the Civil Practice and Remedies Code requires both prevailing on a claim for which fees are authorized and recovering damages. Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997); MBM Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 666 (Tex. 2009).

Chief Justice Blacklock, joined by Justice Sullivan, concurred to raise a point the majority left for another day: the trial court’s decision to replace the jury’s $0 fee finding with an award nearly five times the damages, in a case where the plaintiff had lost its principal claim and been found to have breached itself. The concurrence questioned why the law treats a jury’s zero finding on fees with more suspicion than a zero finding on damages, and suggested the issue “should not go unaddressed for much longer.” The majority added a footnote expressing similar reservations. Whether and how the Court takes up that question may be worth watching.

For businesses that sell goods or services on informal terms, the opinion suggests that the presence of an agreement — even an oral one memorialized only by invoices — will likely channel any payment dispute into contract, and that arguing about the bill is not the same as denying the deal. It also suggests that a claim in quantum meruit, though routinely pleaded in the alternative, may not serve as a fallback where the existence of the contract is not itself in question.

See also our earlier posts on quantum meruit and its statute of limitations.

Suspicion, Red Flags, and Justifiable Reliance: Maya Walnut LLC v. Ly

The other party to a business deal made a representation I now know was false. I had some doubts at the time but went ahead anyway. Can I sue for fraud?

The Supreme Court of Texas addressed nearly that situation in Maya Walnut LLC v. Ly, No. 24-0171 (Tex. June 26, 2026). A Dallas grocery tenant negotiating a lease renewal was assured the space remained available; the landlord had in fact already leased it to a competitor. A jury found that the landlord had misrepresented the availability of the premises and awarded the tenant roughly $20.8 million, including exemplary damages. The court of appeals reversed, and the Supreme Court affirmed, holding that the tenant’s reliance on the landlord’s representations was not justifiable as a matter of law.

Justifiable reliance is an element of fraud in Texas, and the Court has held for some time that a sophisticated party dealing at arm’s length must exercise ordinary care for the protection of its own interests. Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010); JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 654 (Tex. 2018); Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 496–97 (Tex. 2019). Under those cases, “red flags” surrounding a representation may negate reliance as a matter of law when the circumstances make actual reliance extremely unlikely, although the question is ordinarily one for the fact-finder.

Maya Walnut appears to develop that doctrine in several respects. First, the Court did not require an accumulation of warning signs; it treated the tenant’s awareness of the competitor’s planned “big surprise” as sufficient on its own to call for inquiry. Second, the Court’s formulation focuses on the plaintiff’s actual state of mind: “When a sophisticated party engaged in arm’s-length negotiations becomes suspicious that a representation may be false, its blind reliance on that representation without further investigation is per se unjustifiable.” Third, the inquiry the Court described was modest — the tenant “easily could have asked Walnut Creek if the property remained available” — and the failure to ask was treated as dispositive. Finally, the tenant was a grocery operator negotiating its own lease rather than an institutional party of the kind involved in the earlier cases, which may suggest a broad reading of who counts as “sophisticated” in commercial dealings.

Chief Justice Blacklock, joined by Justices Lehrmann and Sullivan, concurred in the judgment but not in the red-flag analysis, reasoning instead that the landlord’s statements were non-committal and that no reasonable business would have relied on them to the extent the tenant did. The majority’s formulation therefore carries the Court’s authority, but the separate writing indicates some difference of view about how the doctrine should be framed, and later cases may test its limits — for example, where the suspicious party does ask and receives a further misrepresentation, or where the parties are not on equal footing.

The opinion does not change the elements of fraud, and it does not purport to reach consumers or relationships in which one party owes the other a duty of disclosure. What it does suggest is that, in a commercial negotiation in Texas, the point at which a party becomes uneasy may also be the point at which the law expects that party to ask a direct question and document the answer.

See also our earlier post, “Read Before Signing,” on the related principle that a party generally may not rely on the other side’s description of what a written document says.