Is a non-compete legal in Texas?
Non-compete agreements are legal and enforceable in Texas, but only if they comply with the requirements set forth under the Texas Covenants Not to Compete Act, codified in Tex. Bus. & Com. Code § 15.50(a).[1] The Texas Supreme Court and lower courts have interpreted these requirements narrowly to ensure that non-competes protect legitimate business interests without unduly restricting employees’ right to work.
Rule (Legal Standard)
Under Tex. Bus. & Com. Code § 15.50(a), a non-compete agreement is enforceable if it:
- Is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; and
- Contains limitations as to time, geographical area, and scope of activity that are reasonable and do not impose greater restraint than necessary to protect the employer’s legitimate business interests.[1]
Application and Interpretation by Texas Courts
In Alex Sheshunoff Management Services, L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006), the Texas Supreme Court held that an “otherwise enforceable agreement” may include an executory promise—such as the employer’s promise to provide training or access to proprietary information—if that promise is later performed. This expanded the enforceability of non-competes beyond purely contemporaneous exchanges.[1]
In Marsh USA, Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), the Court further clarified that non-compete agreements supported by stock options or similar consideration giving the employee a proprietary interest in the company could also satisfy the requirement of being “ancillary to or part of” an enforceable agreement. The Court reaffirmed a “trend toward enforceability” consistent with the legislative intent of the Act.[2]
Texas courts also emphasize reasonableness in scope. Covenants not to compete cannot extend beyond the geographic area in which the employee worked or the employer conducted business, as in Cobb v. Caye Publishing Group, 322 S.W.3d 780 (Tex. App.—Fort Worth 2010).[1]
Conclusion
Yes, non-compete agreements are legal in Texas, but they must be narrowly tailored, supported by valid consideration, and designed to protect legitimate business interests such as trade secrets, confidential information, or goodwill. Overbroad restrictions on time, geography, or activities are likely to be reformed or struck down by Texas courts.