Almost every non-compete dispute a North Texas business brings to a lawyer starts the same way. A salesperson left on Friday. On Monday, three accounts called to say they were moving. Somebody pulls the employment agreement out of a drawer, finds a paragraph headed “Covenant Not to Compete,” and asks the only question that matters: is this thing enforceable?
In Texas, the answer turns on a statute that is shorter than most people expect and a line of Texas Supreme Court cases that has moved considerably over thirty years. This article walks through what the law actually requires, what courts do with an agreement that reaches too far, and what changed in the last two years for health care employers and for everyone watching the federal picture.
The statute is the whole starting point
Texas non-competes are governed by the Covenants Not to Compete Act, found at Sections 15.50 through 15.52 of the Texas Business and Commerce Code. Section 15.50(a) contains the test:
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.
That single sentence carries two independent requirements. The covenant has to be attached to something else that is enforceable. And its limits have to be reasonable and no broader than necessary. An agreement can fail either test on its own, and in practice most disputes are fought on the second.
Section 15.52 makes the Act the exclusive source of both the criteria for enforceability and the available remedies, displacing other law and other rules of order to the extent they conflict. That matters more than it sounds. It means the analysis is statutory, not a general reasonableness inquiry a court can approach however it likes.
What “ancillary to an otherwise enforceable agreement” means now
This is the requirement that generated the most litigation and the most confusion, and the law here has genuinely changed.
The starting point was Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642 (Tex. 1994), which read the statute strictly. Under Light, the consideration given by the employer had to give rise to the employer’s interest in restraining the employee, and the underlying agreement had to be enforceable at the moment it was signed. Because most Texas employment is at will, and because a promise made to an at will employee is often illusory when made, that reading made a great many employment non-competes unenforceable.
The Texas Supreme Court walked that back in two steps.
In Alex Sheshunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006), the Court held that a covenant is not unenforceable merely because the employer’s promise was executory when made. If the employer later performs, for example by actually providing the confidential information it promised, a unilateral contract is formed and the covenant can satisfy the Act. The phrase “at the time the agreement is made” in Section 15.50(a) governs when the covenant must be ancillary to the agreement, not when the whole agreement must be enforceable.
In Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), the Court went further and rejected Light‘s requirement that the consideration “give rise to” the interest being protected. The consideration in Marsh was stock options. The Court held that what the statute requires is that the covenant be ancillary to or part of an otherwise enforceable agreement, with consideration reasonably related to an interest worthy of protection such as goodwill. It described Light‘s test as more restrictive than the common law rule the Legislature intended to restore.
The practical effect for a Texas employer is that this element is now much easier to satisfy than it was twenty years ago. A genuine promise to provide confidential information, trade secrets, specialized training, or an equity interest, actually performed, will generally carry the covenant. What still fails is a covenant hung on nothing at all: continued employment by itself, with no promise of anything the employee did not already have.
Reasonable as to time, geography, and scope
This is where most cases are actually decided, and it is where drafting discipline pays.
The statute does not set numbers. It sets a standard: reasonable, and no greater restraint than necessary to protect the goodwill or other business interest of the party seeking enforcement. Texas courts apply that standard to the facts, which means the same two year term can be reasonable for a departing owner and unreasonable for an inside sales representative.
Three questions predict most outcomes.
Does the geographic scope match where the employee actually worked? A territory restriction tied to the counties or accounts an employee personally serviced is far more defensible than a statewide or nationwide restriction imposed on someone whose work never left Collin County. Employers routinely lose ground here by using one template across every role.
Does the activity restriction match what the employee actually did? A covenant barring a former employee from working in any capacity for any competitor is broader than an interest in goodwill requires. A covenant barring the employee from selling the same product line to the same customer set is not.
Is the duration proportionate to how long the protected advantage lasts? If pricing information goes stale in six months, a five year restriction is difficult to justify as necessary.
None of these are bright line rules, and it would be wrong to tell you that a particular number of years or miles is safe in Texas. Courts assess them case by case, and reasonable judges reach different conclusions on similar facts. What is reliable is the direction of the analysis: the closer the restriction tracks the employee’s actual role, the better it holds.
What happens when a covenant reaches too far
Here Texas is meaningfully different from states that simply void an overbroad covenant, and the difference cuts both ways.
Section 15.51(c) provides that if a covenant is otherwise ancillary to an enforceable agreement but contains limitations as to time, geographic area, or scope of activity that are unreasonable and impose a greater restraint than necessary, the court shall reform the covenant to make those limitations reasonable, and shall enforce it as reformed. Reformation is mandatory, not discretionary.
For an employer, that means an overbroad covenant is usually not fatal. A court can narrow it and enforce the narrowed version.
But the same subsection attaches a real cost. Where the court has to reform, it may not award the employer damages for any breach that occurred before reformation. Relief is limited to injunctive relief going forward. An employer that drafted too broadly and then sued for lost profits can find the damages claim gone even though it wins the injunction.
There is a second cost. Section 15.51(c) allows a court to award the employee reasonable attorney’s fees and costs where three things are true: the primary purpose of the agreement was to obligate the employee to render personal services, the employee proves the employer knew at the time of execution that the covenant contained unreasonable limitations, and the employer nevertheless sought to enforce it to a greater extent than was necessary to protect its legitimate interests. That provision is not invoked in every case, but it is the reason a knowingly overbroad template is a bad idea rather than a harmless one.
Who has to prove what
Section 15.51(b) allocates the burden by the nature of the agreement, and the allocation is counterintuitive.
If the primary purpose of the agreement is to obligate the employee to render personal services, which describes an ordinary employment agreement, the employer seeking enforcement bears the burden of establishing that the covenant meets the Section 15.50 criteria.
For other agreements, a covenant given in connection with the sale of a business being the common example, the burden flips. The person challenging the covenant has to prove it does not meet the criteria.
This is one reason non-competes signed as part of a business sale are, as a practical matter, considerably easier to enforce than the same language in an employee handbook. If you are buying a North Texas company and the seller is staying on, the covenant in the purchase agreement and the covenant in the employment agreement are not doing the same legal work.
Health care employers now have their own rulebook
Senate Bill 1318, effective September 1, 2025, significantly rewrote the rules for physician non-competes and extended a parallel set of rules to other licensed practitioners.
For physicians, the amended Section 15.50 now requires that a buyout amount be no greater than the physician’s total annual salary and wages at the time of termination, that the covenant expire no later than the one year anniversary of termination, that the geographic area be limited to no more than a five mile radius from the location where the physician primarily practiced, and that the terms be clearly and conspicuously stated in writing. The statute also preserves the physician’s access to a list of patients seen in the prior year and to medical records with patient authorization, and preserves the ability to continue treating a specific patient through an acute illness after termination. A covenant is void if the physician is involuntarily discharged without good cause, with good cause defined as a reason directly related to the physician’s conduct, including job performance.
Section 15.501 extends the buyout cap, the one year limit, the five mile radius, and the written conspicuousness requirement to dentists licensed by the State Board of Dental Examiners, nurses licensed under Chapter 301 of the Occupations Code, and physician assistants licensed under Chapter 204.
Two details matter for planning. The Act applies only to covenants entered into or renewed on or after September 1, 2025, so existing agreements are governed by the prior law until they renew. And the five mile radius is measured from the location where the practitioner primarily practiced, which is a question of fact for a practitioner who split time between sites.
The federal ban is gone
For two years, employers planned around the possibility that the Federal Trade Commission’s Non-Compete Clause Rule would void most existing non-competes nationwide. That is no longer a live concern.
A federal court in the Northern District of Texas held the rule unlawful and set it aside, finding the Commission exceeded its statutory authority and that the rule was arbitrary and capricious. On September 5, 2025, the FTC voted to dismiss its appeals and accede to the vacatur. The Commission then formally removed the rule from the Code of Federal Regulations, effective February 12, 2026.
The rule is off the books. What that does not mean is that federal antitrust exposure has disappeared entirely, because the Commission retains its general authority to bring case by case enforcement actions, and it has said it intends to use it. For a typical North Texas employer with reasonable, role specific covenants, that is not the practical risk. The practical risk remains a Texas state court applying Section 15.50.
Where this leaves you
If you are drafting, the highest value work is not making the covenant broader. It is making it narrower and more specific to the role, and making sure the employer is actually delivering the confidential information or training the agreement promises. A tight covenant backed by real performance beats a sweeping one backed by nothing.
If you have just lost an employee, the first hour is worth more than the next month. Pull the agreement, confirm what was actually promised and delivered, identify the specific customers or information at issue, and preserve the record before devices are wiped and inboxes are cleaned out. Whether a temporary injunction is available often turns on evidence that exists in the first week and not the fourth.
And if you are the one who signed the agreement and is now leaving, understand that reformation cuts against you as well. The fact that a covenant looks too broad on its face does not make it a nullity in Texas. A court can narrow it and enforce what remains.
If you want a non-compete reviewed before it goes into your next offer letter, or you are dealing with a departure right now, the attorneys at Hanshaw Kennedy Hafen work with employers across Frisco, Plano, McKinney, and the surrounding North Texas communities. Visit our Non-Compete Contracts page to learn more.
Related reading
- 5 Contract Clauses Every Texas Business Owner Should Understand Before Signing
- What Is a Breach of Contract Under Texas Law?
About the author: Collin D. Kennedy is a partner at Hanshaw Kennedy Hafen in Frisco, Texas, and a Fellow of the Litigation Counsel of America. He has tried business, healthcare and contract cases across Texas and the Southwest.