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.”
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