How to Draft a Texas Non-Compete Agreement After the 2024 FTC Rule: Enforceability, Notice, and Severability Clauses

How to Draft a Texas Non-Compete Agreement After the 2024 FTC Rule: Enforceability, Notice, and Severability Clauses

Texas non-compete agreements remain enforceable in 2026 if they comply with the Texas Covenants Not to Compete Act and are narrowly tailored, but employers must also track ongoing federal FTC non-compete litigation and any applicable injunctions. The FTC’s 2024 final rule changed the compliance conversation nationwide, even where state law traditionally favors well-drafted restraints. This article explains how to draft a Texas non-compete after the 2024 FTC rule, with enforceability standards, notice language, and severability/reformation clauses.

Why the 2024 FTC Non-Compete Rule Still Matters in Texas

The FTC issued a final rule in 2024 that would have broadly prohibited many worker non-compete agreements nationwide, with limited exceptions. Although Texas non-competes are governed primarily by the Texas Covenants Not to Compete Act (the “Texas Act”) and Texas case law, the FTC rule triggered immediate litigation and created real-world drafting risk: employers need agreements that (1) are enforceable under Texas law and (2) can pivot quickly if federal restrictions become effective, are partially enjoined, or are replaced by new federal or state requirements.

Practically, Texas employers and their counsel should draft with “regulatory resilience” in mind—using modular restrictions (confidentiality, non-solicitation, invention assignment), carefully tailored non-compete terms where justified, and clear notice and severability/reformation provisions that preserve the maximum lawful restraint.

Texas Enforceability Basics: What Must Be True for a Non-Compete to Hold Up

1) The non-compete must be ancillary to an otherwise enforceable agreement

Under the Texas Act, a covenant not to compete is enforceable only if it is “ancillary to or part of an otherwise enforceable agreement” at the time the agreement is made. In Texas practice, this requirement is most commonly satisfied by linking the non-compete to enforceable promises such as:

Access to confidential information/trade secrets (with a corresponding confidentiality obligation), or

Specialized training (when documented and meaningfully tied to the restriction), or

Equity or incentive compensation coupled with enforceable restrictions and consideration.

Drafting tip: Do not rely on a generic “continued employment is sufficient consideration” sentence without more. Texas courts evaluate whether the employer actually promises something of value that supports the restraint and whether the restraint is tied to protecting that interest.

2) The restriction must be reasonable in time, geography, and scope of activity

A Texas non-compete must be no broader than necessary to protect legitimate business interests (e.g., goodwill, customer relationships, confidential information). The “reasonableness” analysis is fact-specific, but drafting should reflect a clear business justification:

Time: Many Texas agreements use 6–24 months depending on role, sales cycle, and access to strategic information. Longer periods require stronger justification.

Geography: Tie the territory to where the employee actually worked, had responsibility, or influenced customers—rather than “the entire United States” by default.

Scope of activity: Restrict only the activities the employee performed or had material responsibility for (e.g., selling a defined product line to defined customer types), rather than banning work “in any capacity” for a competitor.

3) Texas allows reformation—but you should draft for it

Texas courts may reform overly broad non-competes to make them reasonable and enforceable. Reformation can preserve value, but it also introduces litigation risk and cost. Better drafting reduces the chance you need a judge to rewrite your agreement.

Practical point: If a court reforms the covenant, remedies for pre-reformation conduct may be limited. That makes front-end tailoring (and clean severability/reformation clauses) especially important.

Step-by-Step: How to Draft a Texas Non-Compete After the FTC Rule

Step 1: Consider whether you need a non-compete at all

Because of shifting federal policy and increased scrutiny, many companies can protect themselves with layered, less-restrictive tools:

Confidentiality/trade secret protection: Define “Confidential Information,” require return/destruction, and include injunctive-relief language.

Non-solicitation: Customer and employee non-solicitation often addresses the core risk—poaching and diversion—without outright banning competition.

Non-interference / no-raid: A narrow restriction against inducing breaches of contract or interfering with vendor relationships can be effective.

Garden leave (limited): In some contexts, paying for a short transition period can reduce competitive harm and help defensibility (discuss with counsel).

If you decide a non-compete is necessary, document why (role-based risk memo, access to pricing strategy, roadmap, key accounts, etc.). That documentation can be valuable later.

Step 2: Tie the restriction to protectable interests and consideration

Draft the agreement so the non-compete clearly protects the employer’s confidential information, goodwill, and customer relationships—and that the employee receives enforceable consideration connected to those interests. A common structure is:

(a) Confidentiality covenant (enforceable on its own),

(b) Acknowledgment of access to confidential information and customer relationships,

(c) Non-compete that is expressly tied to those interests, and

(d) Non-solicitation and non-disclosure provisions as backstops.

Example (conceptual): “Employee will receive and use Confidential Information and receive specialized customer relationship training. In exchange, Employee agrees that for 12 months after separation, Employee will not perform substantially similar sales functions for a direct competitor within the territory Employee serviced during the last 12 months of employment.”

Step 3: Define the restricted activities narrowly

Overbreadth is a common reason restraints become expensive to enforce. Use job-function-based drafting:

Better: “Engaging in enterprise SaaS sales to healthcare provider accounts for a Competing Business.”

Riskier: “Working for a competitor in any capacity, including as a consultant, investor, or advisor.”

Also consider excluding truly passive investment activity (e.g., owning less than a small percentage of a public company) to appear reasonable and avoid unnecessary disputes.

Step 4: Use a defensible geographic scope (or a customer-based alternative)

In Texas, geography should reflect reality. For remote or regional roles, consider:

Territory-based restriction: counties/metros where the employee actually worked.

Customer-based restriction: customers/prospects the employee had material contact with or responsibility for during a defined lookback period (often 12–24 months). Customer-based restrictions can be easier to defend than sweeping geographic maps.

Step 5: Calibrate duration to the business cycle

Choose a duration you can justify with business facts:

6–12 months: often appropriate for many sales and operational roles.

12–24 months: more common for senior executives, key engineers with product roadmap knowledge, or roles with long sales cycles.

Draft an internal rationale (sales cycle, contract renewal cadence, product release timelines) so the term is not arbitrary.

Notice Provisions After the FTC Rule: What to Include

The FTC’s 2024 rule discussion elevated the concept of “notice” because the rule contemplated mandatory notices to workers that their non-competes were rescinded (subject to exceptions). Even if the federal rule is blocked or modified, Texas employers benefit from clear notice architecture in their agreements and separation workflow.

1) Add a regulatory-change and notice-delivery clause

Consider contract language that anticipates changes in law and permits lawful notice delivery:

Key elements to include:

Notice methods: email to last known address, HR portal delivery, certified mail option.

Deemed receipt: for example, 24–48 hours after email transmission if no bounce-back.

Obligation to update contact info: employee must maintain current email/mailing address.

This makes it easier to comply quickly if federal or state authorities require specific notices or if your company elects to modify restrictions post-separation.

2) Include a “compliance savings” notice concept—without overpromising

Drafting should avoid implying the company will never enforce restrictions. A balanced approach is to state that the parties intend the agreement to be enforced to the maximum extent permitted by applicable law and that the employer may provide updated notices or amendments as required by law.

3) Separation letters should restate the restrictions and provide practical boundaries

Even a well-drafted agreement can fail in practice if the offboarding process is sloppy. A Texas-friendly approach is to send a separation notice that:

identifies the agreement and relevant sections,

summarizes restricted period and scope,

offers a point of contact for clearance questions, and

demands return of devices and information.

Severability and Reformation (“Blue Pencil”) Clauses: Draft Them to Win the Margin

1) Use severability language that preserves lawful portions

A severability clause should state that if any provision is found invalid or unenforceable, the remainder remains effective. For restrictive covenants, also clarify that related covenants (confidentiality, non-solicitation) survive even if the non-compete is narrowed.

2) Add an express reformation clause consistent with Texas law

Texas courts can reform unreasonable restraints. A strong clause signals intent and provides a roadmap:

Reformation concept: If a restriction is overly broad, a court (or arbitrator) should modify it to the minimum extent necessary to make it enforceable and then enforce it as modified.