How to Draft and Enforce a Texas Non-Compete Agreement After the 2024 FTC Non-Compete Rule Challenges
Texas non-compete agreements remain enforceable in 2026 if they meet Texas Business & Commerce Code § 15.50’s “ancillary to” and “reasonable limitations” requirements. Ongoing court challenges to the FTC’s 2024 non-compete rule have created uncertainty nationally, but Texas employers still draft and litigate under established Texas statute and case law. This article explains how to draft, update, and enforce Texas non-competes post-FTC-rule challenges, with practical clauses, pitfalls, and litigation strategies.
Where Texas Non-Competes Stand After the FTC’s 2024 Non-Compete Rule Challenges
Texas non-compete enforceability is still primarily governed by the Texas Covenants Not to Compete Act (“CNCA”), found in Texas Business & Commerce Code § 15.50 et seq. The Federal Trade Commission’s 2024 non-compete rule—intended to significantly restrict most worker non-competes—triggered immediate nationwide litigation and has faced substantial judicial resistance. For Texas employers and executives, the practical takeaway is that Texas courts continue to analyze restrictive covenants using Texas statutes and Texas precedent unless and until a binding federal rule or statute clearly preempts state law.
In other words, the “safe” approach for business and corporate security remains the same: draft to the CNCA’s requirements, avoid overreach, and build a factual record supporting legitimate business interests such as trade secrets, confidential information, customer goodwill, and specialized training.
Texas’s Enforceability Test: The Two Requirements You Must Meet
Under Texas law, a non-compete is enforceable only if it satisfies two core conditions:
1) The non-compete must be “ancillary to or part of” an otherwise enforceable agreement
Texas requires the non-compete to be tied to a valid agreement supported by consideration. Common examples include agreements where the employer provides access to confidential information, trade secrets, or specialized training in exchange for the employee’s promise not to compete.
Drafting tip: Avoid treating the non-compete as a standalone restriction. Place it within (or expressly tie it to) the employment agreement, equity agreement, confidentiality agreement, or training agreement, and clearly state the consideration being provided.
2) The restrictions must be reasonable in time, geographic area, and scope of activity
A Texas non-compete must be no broader than necessary to protect the employer’s goodwill or other legitimate business interests. Texas courts evaluate reasonableness contextually—industry, role, territory actually served, and the type of competitive activity restricted all matter.
Practical benchmark: Many Texas cases treat 6–24 months as more likely to be defensible than longer terms, but reasonableness depends on the facts. Geographic scope should track where the employee actually worked or influenced customers, and activity restrictions should be limited to the employee’s real job functions (not the entire industry).
Drafting a Texas Non-Compete: A Clause-by-Clause Framework
Below is a practical structure attorneys and businesses often use to improve enforceability and reduce litigation risk.
A. Define the protectable interests with specificity
Texas courts are more receptive when the agreement is explicit about what the employer is protecting. Consider defining:
Confidential information: pricing, margin data, customer lists, vendor terms, sales playbooks, product roadmaps, source code, security protocols, and non-public financials.
Trade secrets: identify categories that are treated as secrets, and cross-reference your company’s trade secret policies (access controls, confidentiality markings, need-to-know restrictions).
Goodwill: customer relationships, referral networks, and brand reputation tied to the employee’s role.
Example (good drafting): “Employee will have access to and develop Confidential Information and customer goodwill, including non-public pricing and renewal strategy for accounts Employee manages in the Dallas–Fort Worth market.”
B. Make the “ancillary” link explicit
A common weakness is an agreement that mentions confidentiality in general terms but does not clearly connect the non-compete to the confidential access or training being provided.
Drafting tip: Include a recital and an operative clause: “As part of Employee’s employment, Company will provide access to Confidential Information and specialized training. In consideration of that access and training, Employee agrees to the restrictions in this Section.”
C. Time limitation: pick a term you can defend
Choose a duration that matches how long the information remains competitively sensitive and how long customer goodwill is realistically at risk.
Examples:
Sales/account roles: 12 months is often easier to justify than 24 months if your customer renewal cycles are annual.
Engineering/product roles: 12–18 months may align with product development cycles, but document why.
Executive roles: 18–24 months can be defensible when the executive had broad strategic insight, but be prepared to support it.
D. Geographic limitation: tie it to where the employee actually mattered
Texas courts scrutinize geography closely. “Statewide” or “nationwide” restrictions can be attacked if the employee only served one region.
Better approaches:
Limit to counties, metros, or territories the employee serviced in the last 6–12 months of employment.
Use a customer-based territory: “customers Employee serviced or about whom Employee obtained Confidential Information.” This can sometimes reduce the need for a broad map-based restriction.
E. Scope of activity: prohibit what creates unfair competition, not all work
A key enforceability issue is whether the non-compete restricts only the competitive activities that threaten the employer’s protectable interest.
Overbroad: “Employee may not work for any competing business in any capacity.”
Narrower and safer: “Employee may not perform the same or substantially similar duties as performed for Company for a competitor within the Restricted Territory during the Restricted Period.”
Security-driven industries: If the concern is misuse of technical know-how, focus on “work involving substantially similar products/services” rather than “any competitor,” and pair with a robust confidentiality and trade secret regime.
F. Include non-solicitation and non-disclosure provisions (often your strongest tools)
Even when a non-compete is contested, Texas employers frequently obtain meaningful relief through narrower restraints:
Customer non-solicitation: prohibit soliciting customers the employee served or learned about through confidential information.
Employee/raiding non-solicitation: prohibit recruiting or soliciting employees for a defined period.
Confidentiality and trade secret protection: well-drafted non-disclosure clauses and clear internal security practices often strengthen requests for injunctive relief.
G. Add reformation (“blue pencil”) language—while drafting as if you’ll never need it
Texas law allows courts to reform overbroad non-competes to make them reasonable in many circumstances. However, relying on reformation can reduce leverage and may affect remedies for pre-reformation conduct. Draft narrowly from the outset, but include language authorizing a court to modify scope, territory, or duration to the maximum enforceable extent.
Examples of “Reasonable” vs. “Risky” Texas Non-Compete Designs
Example 1: Medical device sales rep in Houston
Reasonable design: 12 months; restricted to Harris County and contiguous counties; activity limited to soliciting or selling the same product line to accounts the rep serviced or learned about through confidential information; strong customer non-solicitation and confidentiality provisions.
Risky design: 24 months; statewide Texas; prohibits employment “in any capacity” for any medical device company.
Example 2: SaaS account executive covering Texas and Oklahoma
Reasonable design: 12 months; customer-based restriction tied to accounts handled in the last 12 months; scope limited to sales/business development for competing SaaS product category; non-solicitation and confidentiality emphasized.
Risky design: nationwide restriction not tied to actual accounts or territory; prohibits working for “any software company.”
Example 3: Senior engineer with access to proprietary roadmap
Reasonable design: 12–18 months; activity restriction focused on developing substantially similar product features or working on the same technical domain for named competitor set or defined market segment; robust trade secret protections and return-of-property provisions.
Risky design: broad “no employment with competitor” clause without tying it to protectable secrets or providing clear consideration.
Steps to Improve Enforceability Before a Dispute Happens
1) Build a “confidentiality and access” record
Courts are more receptive when the employer can show the employee actually received and used protected information. Practical measures include:
Role-based access controls, audit logs, and least-privilege permissions.
Confidentiality training and written acknowledgments.
Clear classification/labeling of sensitive materials.
Exit checklists confirming return of devices, credentials, and data.
2) Use tailored agreements by role, not one-size-fits-all templates
One template for every employee often leads to overbreadth. Maintain separate forms for: executives, sales/customer-facing roles, engineers/product roles, and operational employees.
3) Revisit non-competes when the employee is promoted or changes territories
If an employee’s role changes materially—new territory, new access, new responsibilities—update the agreement and document fresh consideration where appropriate.
Enforcement in Texas: Demand Letters, TROs, and Litigation Realities
Start with a fast, evidence-driven approach
Many Texas non-compete disputes move quickly. Employers often pursue emergency relief (temporary restraining order and temporary injunction) when there’s credible evidence of imminent harm—customer poaching, misuse of confidential information, or solicitation of staff.
