Texas Non-Compete Agreements in 2025: Key Insights

Non-compete agreements have long been a topic of legal discussion and debate in Texas, especially as businesses seek ways to protect their trade secrets, client relationships, and proprietary knowledge. Understanding the key elements that determine the enforceability of these agreements is critical for both employers and employees.

1. What Are Non-Compete Agreements?

A non-compete agreement is a contract in which one party (typically an employee) agrees not to engage in certain business activities that directly compete with the other party (usually an employer). These agreements are designed to prevent employees from using confidential information, skills, or customer relationships to gain an unfair advantage by working for competitors or starting similar businesses.

2. Texas Covenant Not to Compete Statute

Texas non-compete agreements are governed by the Texas Covenants Not to Compete Act, which lays out the parameters for enforceability. The statute recognizes that while non-compete agreements can be important tools for protecting business interests, they should not unduly restrict an employee's ability to work in their chosen field.

• a. Texas Free Enterprise and Antitrust Act

Under the Texas Free Enterprise and Antitrust Act of 1983, any contract, combination, or conspiracy that restrains trade or commerce is unlawful. However, the Texas legislature carved out an exception to this general rule by allowing non-compete agreements to be enforceable in specific cases. This exception exists to protect businesses that have legitimate interests, such as trade secrets, confidential information, and customer relationships, which could be at risk if an employee were allowed to freely join a competitor.

• b. Noncompete Exception

  
  

The Texas legislature’s exception to the general rule prohibits unreasonable restrictions on competition. Non-compete agreements may only be enforceable if they are part of a larger, otherwise enforceable agreement, if the restrictions are reasonable in scope, and if they protect legitimate business interests. The statute requires that employers show valid consideration to make these agreements binding.

3. Enforceability

In Texas, a non-compete agreement can be enforced if it meets certain criteria:

• Ancillary to an enforceable agreement: The agreement must be part of a larger contract, such as an employment or confidentiality agreement, where both parties make binding promises.

• Reasonable restrictions: The court will review the non-compete agreement’s time frame, geographic scope, and activity restrictions to ensure they are necessary to protect the employer’s legitimate interests. If the restrictions are seen as too broad or too harsh, they may be deemed unenforceable.

4. Consideration

For a non-compete agreement to be enforceable in Texas, adequate consideration must be provided to the employee. In legal terms, "consideration" refers to something of value exchanged between the parties.

In the context of non-compete agreements, consideration could include:

• Confidential information: Access to trade secrets, proprietary data, or client relationships.

• Specialized training: Knowledge or skills that are tailored to the employer’s business and would be difficult to replicate elsewhere.

• Stock options: Ownership in the business, providing an incentive to protect the company’s interests.

Consideration is crucial because it proves that the employer has given the employee something valuable in return for agreeing to the restrictions in the non-compete. Without proper consideration, the non-compete agreement may not be enforceable.

5. Overbroad Restrictions

One of the most common challenges to enforcing a non-compete agreement in Texas involves overbroad restrictions. Restrictions that are too wide in terms of time, geography, or the scope of activities could render the non-compete unenforceable. However, Texas law provides a mechanism for addressing overly restrictive terms through reformation.

• a. Reformation

If a court determines that a non-compete agreement is overly broad or unreasonable, it may choose to reform the agreement rather than invalidating it altogether. This means that the court will adjust the terms of the non-compete agreement to make it more reasonable and aligned with the employer’s legitimate interests. The goal of reformation is to preserve the enforceability of the agreement while ensuring that it does not unduly harm the employee’s ability to earn a livelihood.

• b. Employer’s Legitimate Business Interest

To justify the restrictions imposed by a non-compete agreement, the employer must show that they are protecting a legitimate business interest. This could include the need to safeguard:

• Trade secrets: Proprietary information that gives the business a competitive advantage.

• Confidential information: Customer lists, business strategies, and financial data.

• Goodwill: The company’s established reputation and customer relationships that could be harmed by a former employee’s departure.

Courts will not uphold a non-compete agreement simply to prevent competition. Instead, they will focus on whether the employer’s restrictions are necessary to protect a specific, legitimate business interest.

6. The Uncertain Future of Non-Competes

In April 2024, the Federal Trade Commission (FTC) proposed a nationwide ban on most non-compete agreements, set to take effect in September 2024. However, a Texas federal court blocked the rule, claiming the FTC lacked the authority to enforce it. While the court's decision temporarily protects employers, the FTC intends to appeal, and other courts have supported the rule. As the future of the FTC's rule remains uncertain, businesses must stay updated on legal developments and continue to follow Texas law.

Conclusion

As of 2025, Texas will continue to enforce non-compete agreements that are reasonable, supported by adequate consideration, and designed to protect legitimate business interests. However, the balance between protecting a company’s interests and ensuring an employee’s freedom to work remains a delicate one. Employees and employers alike must be aware of the specific elements required for an enforceable non-compete and understand the importance of reasonable restrictions.

Whether you are an employer seeking to protect your business or an employee navigating the restrictions of a non-compete agreement, it is essential to consult with a Texas attorney experienced in contract law. With proper legal guidance, both parties can ensure that their rights are protected in compliance with Texas law.

Whether you’re in need of an attorney to assist you in drafting a non-compete or reviewing a non-compete, our attorneys at The Spencer Law Firm are ready to assist you every step of the way. For a personalized review contact Texas attorney Bonnie Spencer or Natalie Maciel at (713) 961-7770.  

Disclaimer:

The information provided in this article is for general informational purposes only and does not constitute legal advice. The contents are not intended to be a substitute for professional legal consultation. Readers are encouraged to consult with our qualified litigation attorney regarding specific legal issues or disputes. The Spencer Law Firm and the author of this article disclaim any liability for actions taken based on the information provided herein.

by Associate Attorney

Natalie Maciel