Is a non-compete enforceable in the state of Texas?
Yes. A non‑compete agreement can be enforceable in Texas, but only if it satisfies strict statutory and judicial requirements. Texas law disfavors restraints on trade and enforces non‑competes only when they meet the Texas Covenants Not to Compete Act and related case law.
Governing Law
Non‑competition agreements in Texas are governed primarily by Tex. Bus. & Com. Code § 15.50(a) and interpreted by the Texas Supreme Court.
"[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, and… contains reasonable limitations as to time, geographical area, and scope of activity."[1]
Legal Requirements for Enforceability (IRAC)
Issue
Whether a non‑compete agreement is enforceable under Texas law.
Rule
A Texas non‑compete is enforceable only if all three requirements are met:
- Ancillary to or part of an otherwise enforceable agreement
- Supported by valid consideration tied to a legitimate business interest
- Reasonable limitations on time, geographic area, and scope of activity[1][2]
Application
1. Otherwise Enforceable Agreement
An agreement is "otherwise enforceable" if it contains mutual, non‑illusory promises. In the employment context, this often includes:
- Access to confidential or proprietary information
- Specialized training
- Stock options or equity incentives
The Texas Supreme Court held that even an executory promise (a promise to be performed later) can satisfy this requirement if the employer actually performs it.[1]
Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson confirmed that promises of training or confidential information can support a non‑compete once fulfilled.[1]
Stock options may also serve as valid consideration where they further the employer’s interest in protecting goodwill and long‑term customer relationships.[2]
2. Ancillary Nexus to a Legitimate Business Interest
The non‑compete must be designed to protect a legitimate interest, such as:
- Trade secrets
- Confidential business information
- Customer goodwill
Texas courts will not enforce "naked restraints of trade"—agreements that merely suppress competition without protecting a real business interest.[2]
3. Reasonableness of Restrictions
Courts closely scrutinize whether the agreement is no broader than necessary:
| Element | Texas Standard |
|---|---|
| Time | Typically 6 months–2 years (context‑specific) |
| Geography | Limited to areas where the employee actually worked |
| Scope | Limited to activities the employee actually performed |
For example, Texas courts have refused to enforce restrictions extending beyond areas where the employer conducted business or the employee worked.[1]
Texas also recognizes the "common calling doctrine", under which restrictions on general skills or widely‑used knowledge are less likely to be enforced.[1]
Conclusion
A non‑compete is enforceable in Texas only if it is narrowly tailored, supported by valid consideration, and tied to a legitimate business interest. Broad or punitive non‑competes are routinely limited or invalidated by Texas courts.
Texas law reflects a policy of favoring competition while allowing reasonable protection of business interests.[1][2]
Practical Implication
If a non‑compete is overly broad, Texas courts may reform it rather than void it entirely, enforcing only reasonable terms (Tex. Bus. & Com. Code § 15.51).