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How to Draft a Texas Non-Compete Agreement for a Small Business in 2026 Under the FTC Rule Changes

Texas non-competes are enforceable in 2026 only if they satisfy the Texas Covenants Not to Compete Act—yet many will be functionally unusable if the FTC’s non-compete rule is in effect. Small businesses must draft with both Texas statutory requirements and fast-moving federal litigation risk in mind. This article explains how to structure a Texas non-compete (and stronger alternatives) for employees and contractors after the FTC rule changes.

Why 2026 Texas non-competes require a dual-track strategy

For Texas small businesses, the core state-law framework has not changed: a covenant not to compete is generally enforceable only if it meets the Texas Covenants Not to Compete Act (TCNCA) and is reasonable in scope. What has changed is the risk profile created by the Federal Trade Commission’s attempted nationwide restrictions on non-compete clauses and the ongoing federal court litigation that has produced shifting outcomes.

In practical terms, employers in 2026 should draft employment restrictions as a layered “restrictive covenants” package—using (1) a Texas-compliant non-compete where legally defensible, and (2) robust alternatives that often survive even when a non-compete is challenged, including confidentiality/trade secret protection, non-solicitation, and customer non-interference provisions.

Texas baseline: what must be true for a non-compete to be enforceable

Texas non-competes are governed primarily by the TCNCA (Texas Business & Commerce Code, Chapter 15). While case law matters, most drafting failures trace back to a few statutory and judicial requirements:

1) The non-compete must be “ancillary to or part of” an otherwise enforceable agreement

In Texas, a non-compete is not a standalone promise. It must be tied to an enforceable agreement—most often an employment agreement that includes the employer’s promise to provide confidential information, specialized training, or access to goodwill, plus the employee’s promise to protect that information and goodwill.

Drafting tip: Put the non-compete in the same document as (or explicitly integrated with) your confidentiality/IP and trade secret provisions, and state that the company will provide access to confidential information and customer relationships as part of the role.

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

Texas courts evaluate whether the restraint is no greater than necessary to protect legitimate business interests such as trade secrets, confidential information, and goodwill. Overbroad restrictions are vulnerable, but Texas allows courts to “reform” (blue-pencil) unreasonable terms in many circumstances.

What “reasonable” often looks like in small-business settings:

Time: Commonly 6–24 months depending on role, sales cycle, and information shelf life.
Geography: Tied to the employee’s actual sales territory, service area, or locations where they worked—not “the entire United States” unless the role truly was national.
Activity scope: Limited to competing services/products the employee worked on, or to competitive roles that would use the same protected know-how.

3) The agreement must be drafted for the worker’s classification and duties

Texas enforces non-competes against employees more predictably than against independent contractors in many scenarios, because the “ancillary” requirement is easier to satisfy in employment settings (access to confidential info, training, goodwill). If you use contractors, you should expect more scrutiny and should rely heavily on confidentiality, IP assignment, and non-solicitation instead of a broad non-compete.

FTC rule changes: what they mean for Texas businesses in 2026

The FTC announced a rule intended to ban most worker non-compete clauses nationwide, with limited exceptions, and litigation has followed in multiple courts. Because the legal status of the FTC rule has been contested, businesses in 2026 should assume one of three realities depending on the most current court rulings at the time they implement agreements:

Scenario A: The FTC rule is fully effective. Many employment non-competes would be prohibited, and employers would need to pivot to alternatives and ensure any exceptions are narrowly met.
Scenario B: The FTC rule is blocked nationwide. Texas law largely governs, but expect heightened scrutiny and employee pushback due to public attention on non-competes.
Scenario C: A partial/limited effect. The rule applies only to certain employers, workers, or jurisdictions depending on court orders. Multi-state businesses must be especially careful.

Practical drafting takeaway: Even if Texas law permits a non-compete, your 2026 agreement should be written so that if the non-compete is later deemed unenforceable under federal developments, your confidentiality, non-solicitation, and trade secret remedies remain intact.

Step-by-step: drafting a Texas non-compete package that holds up in 2026

Step 1: Identify the protectable interests (and document them)

Before drafting, list what you are actually protecting. Texas courts are most receptive when you can point to concrete business assets:

Trade secrets and confidential information (pricing, formulas, source code, margins, vendor terms)
Customer relationships and goodwill (account history, buying patterns, renewal dates)
Specialized training (company-paid programs, proprietary methods)

Operational tip: Maintain access logs and role-based permissions for confidential information. If litigation happens, demonstrating controlled access supports your claim that the information was truly confidential.

Step 2: Build the “otherwise enforceable agreement” first

Your document should clearly provide consideration and obligations that make the overall agreement enforceable. Common components:

Confidentiality and trade secret protection: Define “Confidential Information” carefully and exclude public/independently developed info.
IP assignment (where appropriate): Ensure inventions and work product created within the scope of work belong to the company.
Return of property: Devices, files, credentials, customer lists, and backups must be returned or deleted.
Acknowledgment of access: State that the worker will receive access to confidential information and customer relationships.

Step 3: Draft a narrowly tailored non-compete clause (if you still use one)

A Texas-friendly non-compete typically:

Limits “competition” to the same or substantially similar products/services the worker supported.
Ties geography to where the worker actually worked or had material customer contact.
Uses a duration calibrated to the business cycle (e.g., time to replace the worker and stabilize accounts).

Example (conceptual language, not a substitute for legal advice):

“For 12 months after termination, Employee will not, within the counties in which Employee provided services or had material customer contact during the last 12 months of employment, perform substantially similar services for a business that competes with Company’s [defined product/service line].”

Step 4: Add non-solicitation and non-interference provisions that can stand alone

Even when non-competes are restricted, non-solicitation and non-interference provisions may still be viable, depending on federal developments and how they are drafted.

Customer non-solicitation: Prohibit soliciting customers the worker served or learned about through the company, typically for 12–24 months.
Employee/contractor non-solicitation: Prohibit poaching key team members, usually 12–24 months.
Non-interference: Prohibit disrupting vendor relationships or ongoing projects.

Drafting tip: Define the restricted customer universe based on objective criteria: “customers the worker had material contact with,” “active prospects in CRM assigned to the worker,” or “customers serviced in the prior X months.” Avoid “any customer of the company” unless your worker truly had exposure to all customers.

Step 5: Use garden leave or notice periods where feasible

If the FTC rule limits post-employment non-competes, some businesses use notice periods or paid garden leave (paying the worker during a restricted period while they are still employed but not actively working). This approach can reduce risk because the worker remains employed and compensated, though it must be structured carefully under wage laws and for your operational needs.

Step 6: Include remedies, venue, and severability—without overreaching

Texas employers commonly include:

Injunctive relief language (because damages can be hard to quantify in trade secret cases).
Attorneys’ fees provisions where permitted.
Choice of law/venue aligned with Texas operations (but ensure it won’t be viewed as gamesmanship).
Severability and reformation acknowledging a court’s ability to modify overbroad terms (consistent with Texas practice).

Caution: Avoid penalty-style liquidated damages that look punitive. If you use liquidated damages, they must be a reasonable forecast of actual harm and not a disguised penalty.