Most Texas business owners treat the non-compete as the only lever they have over a departing employee or co-owner. Write the restriction into the agreement, keep the time and the territory reasonable, and hope a judge will enforce it. There is a second lever, and a Texas appeals court has now confirmed that it sits outside the non-compete statute entirely.
On August 6, 2026, the Ninth Court of Appeals at Beaumont held that a clause conditioning a departing cardiologist’s payout on his agreeing not to practice within a twenty mile radius was not a covenant not to compete at all. It was a forfeiture clause. Because the court classified it that way, the enforceability criteria in Chapter 15 of the Texas Business and Commerce Code did not apply to it, and the trial court had no authority to rewrite it into something more reasonable.
The decision is Adnan Afzal, d/b/a Healing Hearts Clinic v. Rajesh Ramineni, No. 09-25-00138-CV, a memorandum opinion by Justice Jay Wright. The money at stake was not small, and the reasoning is not limited to doctors.
What the Beaumont Court Actually Decided
Dr. Ramineni was an employee of Healing Hearts Clinic and a twenty percent shareholder, having paid $180,000 for his shares. When he left, two separate documents governed what he could do next.
The first was his employment agreement, which carried an ordinary two year, twenty mile non-compete with a buyout provision. He used it. He paid $100,000 on February 9, 2023 to buy his way out of that restriction, and then opened a competing cardiology practice inside the radius. Nobody disputed that this was his right.
The second document was Section 5.2b of the amended and restated shareholders agreement. It said he would receive fifty percent of his accounts receivable as of the closing date, paid out over six months, but only if he retired from the practice of cardiology or practiced outside the same twenty mile radius. He practiced inside the radius. The clinic refused to pay. He sued for the accounts receivable, which he put at $428,828.43.
The trial court in Montgomery County agreed with him. It held that Section 5.2b was an unenforceable covenant not to compete, and awarded him the full amount plus fees, interest and costs.
The court of appeals reversed and rendered judgment that he take nothing. Its holding was direct: “Section 5.2b is a forfeiture clause that does not act as a restriction on Ramineni’s right to future employment.” On that basis the panel concluded, “Under these circumstances, we hold that Section 5.2b’s forfeiture provision is not a covenant not to compete and that the trial court erred by concluding that it is.”
The Statute the Clause Did Not Have to Satisfy
This matters because of what Chapter 15 requires of an actual covenant not to compete. Section 15.50(a) provides that “a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement,” and then only “to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained” that are reasonable and no greater than necessary to protect the employer’s legitimate interest.
Section 15.52 makes those criteria exclusive. It provides that the Section 15.50 criteria and the Section 15.51 procedures and remedies “are exclusive and preempt any other criteria for enforceability of a covenant not to compete.” There is no parallel common law track in Texas.
Section 15.51(c) is the provision employers usually rely on when a restriction is drawn too wide. If the limitations are unreasonable, the court “shall reform the covenant to the extent necessary” to make them reasonable, and then enforces the covenant as reformed. Reformation comes at a price: the court may not award the employer damages for any breach occurring before the reformation, and the employer’s relief is limited to an injunction.
None of that machinery was available here, in either direction. Because Section 5.2b was not a covenant, the clinic did not have to prove its terms were reasonable in time, area or scope. And because it was not a covenant, the court held there was “no statutory authority to reform Section 5.2b.” The clause stood exactly as written.
There is also a burden of proof point worth noticing. Under Section 15.51(b), when the primary purpose of the agreement is to obligate someone to render personal services, the party trying to enforce the covenant carries the burden of showing it satisfies Section 15.50. Reclassify the clause as a forfeiture and that burden never arises.
Why Texas Treats a Forfeiture as a Choice
The reasoning did not come out of nowhere. The Beaumont court leaned on Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014), in which the Texas Supreme Court considered forfeiture provisions in a non-contributory profit sharing plan and declined to treat them as covenants not to compete.
The distinction the courts are drawing is between a restraint and a price. A covenant not to compete tells someone they may not do the work. A forfeiture provision tells them they may do the work, and that if they do, they give up a benefit they were not otherwise entitled to receive. Applying Drennen, the Beaumont panel described Section 5.2b as “not a promise on Ramineni’s part to not compete but rather a permissible choice,” and summarized what happened in one sentence: “Ramineni chose to compete within that twenty-mile radius and to forfeit a 50% AR bonus.”
He kept his practice. He kept his patients. He kept his location. What he lost was the bonus. In the court’s framing, that is not a restraint on trade, it is the deal he made.
What the Ruling Does Not Do
This is the part to read carefully before anybody redrafts a contract.
First, the question is not settled. This is a memorandum opinion from one of fourteen Texas courts of appeals. Reporting in October 2026 indicated that Dr. Ramineni had sought additional time to consider petitioning the Texas Supreme Court for review. We have not been able to confirm from the docket whether a petition was filed, and a different court of appeals facing similar facts is not bound to reach the same result. Treat this as a meaningful development in Texas law, not as a rule you can build a succession plan around.
Second, a forfeiture clause buys you nothing you can enforce in court against the person who leaves. A covenant not to compete, if valid, can be enforced by a temporary restraining order or an injunction that actually stops the competing activity. A forfeiture clause cannot, because the departing person is not breaching anything by competing. The only consequence is that money does not get paid. If what you need is to keep a departing partner away from your customers, a forfeiture clause does not do that job.
Third, being outside Chapter 15 does not mean being outside the law. Ordinary contract doctrines still apply to a forfeiture provision, and the courts have not yet mapped out how far those doctrines reach in this specific context. A clause that is punitive, illusory, or triggered by conduct nobody could have anticipated is still exposed. The absence of a reasonableness test under the statute is not the presence of a blank check.
Fourth, how a clause is labeled will not decide the question. The analysis turned on what Section 5.2b did, which was to condition an unvested benefit, not to prohibit conduct. Calling a restriction a forfeiture in the heading while drafting it to bar competition outright invites a court to look past the label.
Healthcare Employers Have a Separate Set of Rules Now
If your business employs clinicians, there is a second development that sits alongside this one and runs in the opposite direction.
Senate Bill 1318, passed by the 89th Legislature and effective September 1, 2025, tightened Section 15.50(b) considerably for covenants relating to the practice of medicine. A covenant against a physician licensed by the Texas Medical Board must now provide a buyout “in an amount not greater than” the physician’s total annual salary and wages at the time of termination, replacing the older and vaguer reasonable price standard that an arbitrator could set. The covenant must expire no later than the first anniversary of termination. It must be limited to no more than a five mile radius from the location where the physician primarily practiced. And its terms must be clearly and conspicuously stated in writing.
The bill also added a new Section 15.501 applying buyout, one year, five mile and written clarity requirements to covenants against dentists licensed by the State Board of Dental Examiners, professional and vocational nurses licensed under Chapter 301 of the Occupations Code, and physician assistants licensed under Chapter 204. A new Section 15.50(d) makes a physician non-compete void and unenforceable if the physician is involuntarily discharged without good cause, defined as a reasonable basis for discharge directly related to the physician’s conduct, job performance or employment record.
One detail determines whether any of this applies to a contract on your desk. The new requirements govern only covenants entered into or renewed on or after September 1, 2025. Agreements signed before that date continue to be governed by the law in effect when they were made, which is why the Ramineni dispute, arising from a 2023 departure, was litigated under the older version of the statute.
Read those two developments together and the picture for healthcare employers is sharper than it looks. The statutory route to restricting a clinician got narrower on September 1, 2025. The non-statutory route, at least in the Ninth Court of Appeals, did not.
What This Means for Your Own Agreements
Three questions are worth putting to any agreement that pays somebody out after they leave.
Does the clause prohibit, or does it price? Look at the operative verb. A clause that says the departing owner shall not engage in a competing business is a covenant, and it lives or dies under Section 15.50. A clause that says a payment is earned only if certain conditions are met is structurally different. The difference is not cosmetic, and the drafting has to match the intent.
Is the benefit something they already own? The Beaumont court was dealing with an unvested bonus, not with the purchase price of equity someone had paid for. Those are not the same thing, and conditioning a payment the departing person has already earned on their staying out of the market is a materially different argument than conditioning one they have not.
What do you actually need to happen? If the honest answer is that a departing partner must not call your customers for two years, a forfeiture clause does not deliver that and you need a covenant that satisfies Chapter 15. If the honest answer is that you do not want to fund a competitor on your way out the door, a well-drafted forfeiture provision may now be the stronger instrument. Most buy-sell and shareholder agreements in North Texas were written before anyone made that distinction deliberately.
Agreements signed years ago rarely get read again until somebody resigns, and by then the drafting choices are fixed. If your company agreement, shareholder agreement or deferred compensation plan contains a clause that takes money back when someone competes, it is worth understanding now which of the two instruments you are actually holding. Our non-compete and restrictive covenant attorneys in Frisco review these provisions for North Texas companies before a departure forces the question, and alongside the trade secret protections that usually sit in the same document.
Related reading
- Texas Right to Repair Is Now Law. Does It Apply to Your Business?
- What Makes a Non-Compete Enforceable Under Texas Law?
- Who Can Legally Own a Medical Practice in Texas?
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.