How does Texas treat noncompete agreements?

Texas treats noncompete agreements as generally disfavored but enforceable if they satisfy the statutory requirements of the Covenants Not to Compete Act, Tex. Bus. & Com. Code § 15.50(a). The core inquiry is whether the covenant is ancillary to or part of an otherwise enforceable agreement and whether its limits on time, geography, and scope are reasonable and no broader than necessary to protect the employer’s goodwill or other legitimate business interest.[1][2]

Bottom Line

A Texas noncompete is not automatically void, but it is enforceable only if it fits within the statutory framework and is narrowly tailored to protect a legitimate interest such as goodwill, trade secrets, confidential information, or similar business interests.[1][2][3]

Texas Rule

Under Tex. Bus. & Com. Code § 15.50(a), a covenant not to compete is enforceable only if:

1. it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made;
2. it has reasonable limits on time, geographical area, and scope of activity; and
3. it does not impose a greater restraint than necessary to protect the promisee’s goodwill or other business interest.[4]

Texas courts emphasize that the statute’s purpose is to promote economic competition, not suppress it.[2] As a result, courts scrutinize noncompetes carefully, especially in employment settings.[2][3]

Key Case Law

1. Early Texas rule: the covenant must protect an interest worthy of protection

In DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990), the Texas Supreme Court held that a restraint is unreasonable unless it is part of and subsidiary to a valid transaction or relationship that gives rise to an interest worthy of protection, such as goodwill or confidential information.[2]

2. Light: the employer’s consideration must relate to the restraint

In Light v. Centel Cellular Co. of Texas, 883 S.W.2d 642 (Tex. 1994), the court held that a covenant was unenforceable where the employer’s promise of specialized training did not adequately tie the covenant to an interest justifying restraint.[3] Light also stated the two-part test that later cases refined: the consideration must give rise to the employer’s interest in restraining competition, and the covenant must be designed to enforce the employee’s return promise.[3]

3. Sheshunoff and Mann Frankfort: Texas moved toward enforceability

In Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006), the court softened Light’s rigidity and held that a covenant can be enforceable even where the employer’s promise is initially executory, so long as the employer actually performs.[1] In Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009), the court recognized that an employer may impliedly promise to provide confidential information when the employee’s role requires it.[2]

4. Marsh USA: goodwill can support a noncompete

In Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), the Texas Supreme Court held that stock options can serve as consideration where they are reasonably related to the employer’s protectable interest in goodwill.[2] The court rejected the argument that consideration must directly “give rise” to the restraint in the strict sense urged under Light.[2]

Practical Texas Takeaways

Texas law also allows reformation of overbroad covenants in many cases. Under Tex. Bus. & Com. Code § 15.51(c), if a covenant is found to be overbroad, the court may reform it and enforce it as reformed rather than invalidating it outright.[2][3]

Special Statutory Rules for Certain Professionals

Texas has additional restrictions for covenants involving certain licensed professionals, including physicians. Under the current version of Tex. Bus. & Com. Code § 15.50(b), physician noncompetes must satisfy specific access, buyout, and other statutory requirements.[4]

Short Answer

Texas treats noncompetes as presumptively disfavored restraints on trade, but enforceable when narrowly drafted and tied to a legitimate business interest under Tex. Bus. & Com. Code § 15.50(a).[1][2][3][4]