Non-compete agreements in Texas: what changed, what did not, and how to structure one under Texas law

Non-compete agreements have been through more change in the last two years than in the previous twenty. A federal ban was announced and then struck down. Texas rewrote the rules for health care practitioners. Through all of it, the basic Texas test kept deciding most cases. Employers who rely on the same template they used five years ago are often relying on an agreement a court will not enforce.

Non-competes also do not stand alone. They sit on top of the same everyday issues as conflicts of interest, such as side projects and relationships, and on top of how the company protects its confidential information and trade secrets. Get the foundation right and the non-compete becomes much easier to defend, and sometimes unnecessary.

What changed

• The federal ban is gone. The Federal Trade Commission’s rule banning most non-competes was set aside nationwide by a Texas federal court in August 2024. The FTC dropped its appeals in September 2025 and formally removed the rule from the Code of Federal Regulations in 2026. Non-competes are governed by state law again.
• Federal scrutiny did not disappear. The FTC now challenges non-competes it considers unfair case by case, with particular attention to health care and staffing.
• Texas rewrote health care non-competes. For covenants entered into or renewed on or after September 1, 2025, non-competes for physicians, and now also for dentists, nurses, and physician assistants, must include a buyout capped at the practitioner’s annual salary and wages, can last no more than one year after the employment or contract ends, and can reach no more than five miles from where the practitioner primarily practiced. A physician’s non-compete is void if the physician is involuntarily discharged without good cause.
• Broader limits were proposed, not enacted. Bills to restrict non-competes outside health care were introduced in the 2025 Texas legislative session but did not become law.

What did not change: the Texas test

Outside health care, Texas enforces a covenant not to compete only if two things are true:

1. It is ancillary to an otherwise enforceable agreement. The employer must give something that creates its interest in restricting competition, most often confidential information, specialized training, or goodwill. At-will employment alone is not enough. The Texas Supreme Court has held that the employer can satisfy this by actually providing the confidential information after the agreement is signed, that a promise to provide it can be implied when the job cannot be done without it, and that other consideration, such as stock options tied to the company’s goodwill, can qualify.
2. It is reasonable in time, geographic area, and scope of activity, and restrains no more than necessary to protect the employer’s goodwill or other business interest.

If a covenant is overbroad, a Texas court reforms it to a reasonable scope rather than throwing it out. But the employer cannot recover damages for conduct before the reformation, and if the employer knew the covenant was unreasonable and tried to enforce it anyway, it can owe the employee’s attorney’s fees. An overbroad non-compete is not a free option.

How to structure a non-compete under Texas law

Non-competes signed as part of selling a business are different. Courts allow broader restrictions to protect the goodwill a buyer paid for, and those deserve their own analysis.

Trade secrets: the protection that does not need a non-compete

Texas and federal law both protect trade secrets, under the Texas Uniform Trade Secrets Act and the federal Defend Trade Secrets Act, whether or not an employee signed a non-compete. But information is only a trade secret if the company takes reasonable measures to keep it secret. Courts look at what the company actually did:

• Is confidential information identified and labeled, and is access limited to people who need it?
• Do employees sign confidentiality agreements, and are they reminded of them at exit?
• Are accounts shut off and devices returned on the last day, and are downloads before departure reviewed?
• Do new hires certify that they are not bringing a former employer’s confidential information? That protects you from someone else’s trade secret claim.

Texas law also limits what a court can stop: it cannot enjoin a former employee from using the general knowledge, skill, and experience they gained on the job. Protect the specific information, not the person’s career.

Confidentiality practices that protect trade secrets

• Define confidential information concretely, and exclude what is public or what the employee knew before.
• Include the federal whistleblower immunity notice. Under the Defend Trade Secrets Act, an employer that leaves the required notice out of an agreement governing confidential information loses the right to exemplary damages and attorney’s fees against an employee who was not notified.
• Do not try to silence protected reports. Confidentiality terms cannot stop employees from reporting possible violations to government agencies. Since 2022, the Speak Out Act makes pre-dispute non-disclosure and non-disparagement clauses unenforceable as to sexual assault and sexual harassment disputes. And for non-supervisory employees, the National Labor Relations Board has at times found overly broad confidentiality and non-disparagement terms unlawful, a position that has shifted with the Board’s membership.

Where the everyday issues come in

Side projects

Most side projects are harmless. The questions are whether the project competes with the company, uses company time, equipment, or information, or creates something the company could claim. Texas, unlike several other states, does not have a statute limiting how far an invention-assignment clause can reach into an employee’s own-time projects, so the agreement’s language does the work. A clear invention-assignment clause, a list of prior and excluded inventions at hiring, and a simple conflict disclosure for side work that touches the business prevent most disputes.

Preparing to leave

Texas law lets an employee prepare to compete while still employed, for example by forming a company or lining up a lease. It does not let them compete, divert opportunities, or solicit customers for the new venture while still on the payroll. A departing employee who stays inside that line is usually fine. One who crosses it may have breached the duty of loyalty whether or not there is a non-compete.

Relationships

A relationship with someone at a competitor, a customer, or a vendor is not misconduct. It does create a risk that confidential information travels, or appears to. Disclosure, and a clear understanding of what stays at work, handles it, before anyone has to wonder.

Where to start

Pull the agreements your employees actually signed, not the template. Check who has a non-compete and why, whether health care covenants meet the 2025 rules, whether the DTSA notice is there, and whether your confidentiality practices would convince a judge the information is secret. I draft and audit these agreements, keep them current, and handle the disputes when someone leaves. See the business law practice.