How to Draft a Texas Non-Compete Agreement After the 2022 Covenants Not to Compete Act Changes
Texas non-compete agreements remain enforceable only if they meet the Texas Business & Commerce Code § 15.50 “ancillary to an otherwise enforceable agreement” test and are reasonable in time, geography, and scope. The 2022 amendments to Texas’s non-compete law refined what qualifies as protectable goodwill and clarified limits in physician non-competes. This article explains how to draft a Texas non-compete after the 2022 changes, with clauses, examples, and enforceability tips.
What Changed in 2022—and Why It Matters to Drafting
Texas enforces non-compete agreements under the Texas Covenants Not to Compete Act (the “Act”), primarily codified in Texas Business & Commerce Code §§ 15.50–15.52. In 2022, the Legislature amended the Act (notably impacting what counts as “goodwill” for enforceability and adjusting physician-related restrictions), and those changes matter because Texas courts scrutinize non-competes at two pressure points: (1) whether the covenant is “ancillary to or part of an otherwise enforceable agreement,” and (2) whether the restraint is reasonable in time, geographic area, and scope of activity.
In practical drafting terms, the 2022 changes push employers and counsel to be more explicit about what legitimate interest is being protected (trade secrets, confidential information, and now more clearly defined forms of goodwill) and to tailor restrictions to that interest—especially in industries where goodwill is primarily relationship-based.
Texas’s Core Enforceability Test (Still the Starting Point)
Under Texas Business & Commerce Code § 15.50, a non-compete is enforceable only if:
- Ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; and
- Contains limitations as to time, geographic area, and scope of activity that are reasonable and do not impose a greater restraint than necessary to protect the employer’s goodwill or other business interests.
Texas is not a “one-size-fits-all” state. A restriction that might be upheld for an executive with statewide responsibilities can be struck (or reformed) for a salesperson whose territory is a single metro area.
“Ancillary to an Otherwise Enforceable Agreement” in Plain English
Texas generally requires that the employee receive something of value that supports the non-compete—most often:
- Access to confidential information;
- Access to trade secrets;
- Training and specialized knowledge (helpful but not always sufficient alone);
- Customer relationships and goodwill that the employer seeks to protect.
Drafting tip: explicitly tie the non-compete to the consideration being provided (e.g., confidential information access, customer lists, pricing strategy, proprietary methods), and include a parallel confidentiality clause to reinforce the “otherwise enforceable agreement” foundation.
2022 Focus: Goodwill Is Not Just “Customers”—Draft It Correctly
A frequent litigation battleground in Texas is whether the restraint truly protects goodwill (rather than simply preventing competition). The 2022 changes are widely understood to reinforce that goodwill can include customer and client relationships and other relationship-based business interests that employers invest in and entrust to employees.
To draft with the 2022 posture in mind, define goodwill with specificity. Avoid vague “we have goodwill” recitals alone. Instead, connect goodwill to:
- Assigned customer accounts and relationship management duties;
- Sales territories and pipeline access;
- Introductions to key clients and referral sources;
- Brand-related reputation developed through employer-funded marketing and platforms.
Example: Drafting a “Goodwill” Recital That Helps (Not Hurts)
Better recital language (illustrative only):
Example: “Employee acknowledges that, during employment, Employee will develop relationships with Employer’s customers and referral sources, receive access to customer history, pricing, and strategic account plans, and represent Employer in a manner that builds Employer’s goodwill. The restrictions in this Agreement are designed to protect that goodwill and Employer’s confidential information.”
Why this helps: it links restrictions to a recognizable protectable interest and describes the mechanism by which goodwill is created and entrusted.
Drafting the Three “Reasonableness” Limits: Time, Geography, Scope
Texas courts look for tailoring. Overbreadth invites litigation and reformation (and may reduce leverage in pre-suit negotiations). Draft each element with your actual risk profile in mind.
Time: Choose a Defensible Duration
Common Texas durations are 6–24 months depending on role, industry, and the sensitivity of information and relationships. Longer terms can be harder to justify unless the employer can show a longer competitive harm window.
Drafting guidance:
- For customer-facing sales: often 12 months is more defensible than 24+ months unless relationships are long-cycle.
- For technical/trade secret roles: duration can track the lifecycle of the confidential information, but you still should select a concrete term.
Geography: Tie It to Where the Employee Actually Worked
Overly broad geographic definitions (“anywhere in Texas” or “the United States”) are common targets. A better approach is to align geography with:
- The employee’s assigned territory;
- Locations where the employee actually provided services;
- Specific counties/metros where the employer competes and the employee had material contact.
Example: “Within Harris County and any county contiguous to Harris County in which Employee performed services for Employer during the last 12 months of employment.”
Scope of Activity: Prohibit What Creates Harm, Not All Competition
Texas disfavors broad “no work for any competitor in any capacity” restrictions. Narrow the scope to the employee’s role and the competitive conduct that would exploit goodwill or confidential information.
Better scope concepts:
- Prohibit performing “substantially similar” duties for a competitor;
- Limit to competing product/service lines the employee worked on;
- Focus on solicitation and servicing of the employer’s customers the employee had material contact with.
Use Non-Solicitation and Confidentiality to Reduce Non-Compete Risk
In many Texas disputes, the employer’s real goal is preventing customer poaching and misuse of confidential information—not eliminating competition. A well-drafted package often includes:
- Confidentiality / trade secret protection provisions (definitions, return-of-property, no-use/no-disclosure);
- Non-solicitation of customers (tied to “material contact” and a defined lookback period);
- Non-solicitation of employees (where appropriate and tailored);
- Non-compete as a backstop for roles with high risk.
Drafting tip: a narrow customer non-solicitation clause can sometimes provide meaningful protection with less enforceability risk than a sweeping non-compete.
Example: Customer Non-Solicitation with “Material Contact”
Example: “For 12 months after employment ends, Employee will not, on Employee’s behalf or on behalf of a competing business, solicit or attempt to solicit any customer or prospective customer of Employer with whom Employee had Material Contact during the last 12 months of employment, for the purpose of providing products or services competitive with those provided by Employer.”
Physician Non-Competes: Ensure Statutory Compliance (Especially After 2022)
Physician non-competes in Texas have additional statutory requirements beyond the general § 15.50 reasonableness framework. If you represent a medical practice or physician group, treat these agreements as a separate drafting project, not a copy-paste from a general employment template.
While the specific physician requirements are found in the Act and related provisions, the core compliance themes include:
- Providing a buyout option under stated terms;
- Not restricting access to medical records and continuity of care obligations;
- Including patient notice and related protections as required by statute and professional standards.
2022 impact: the amendments increased attention on physician restrictions and underscore that physician non-competes must be drafted with precision. If the physician clause is noncompliant, enforceability problems can extend to injunctive relief strategy and settlement leverage.
Don’t Rely on “Blue Pencil” Reformation—Draft for Enforcement
Texas law allows courts to reform overly broad covenants in some circumstances. But drafting with the expectation of reformation is risky because:
- You may lose time and money litigating the scope before getting relief;
- Overbreadth can undermine credibility in a temporary restraining order (TRO) or temporary injunction hearing;
- Remedies and fee shifting can be affected by how the agreement is drafted and pursued.
Best practice: draft a covenant you would be comfortable defending as written.
Key Definitions to Include (and Why They Matter)
Ambiguity is an enforcement killer. Define the terms that will be tested in court:
- “Confidential Information”: include categories (pricing, strategies, margins, customer requirements, source code, etc.) and carve out public/independently known info.
- “Trade Secrets”: reference protection consistent with the Texas Uniform Trade Secrets Act (TUTSA) concepts without overclaiming.
- “Competing Business”: define by product/service lines, not a generic
