Are Non-Compete Agreements Legal in Texas?

Non-compete agreements are generally legal in Texas but must meet specific requirements to be enforceable. Texas law allows employers to protect legitimate business interests through these agreements, provided they are reasonable in scope and duration.

Understanding the nuances of Texas non-compete laws is crucial because improper agreements may be deemed unenforceable. State law governs these contracts even though federal law does not specifically regulate non-competes, making local legal standards essential.

Is It Legal to Own or Use Non-Compete Agreements in Texas?

Yes, non-compete agreements are legal in Texas, but their enforceability depends on meeting statutory criteria. "Legal" means these contracts can be upheld in court if they protect legitimate business interests without imposing undue hardship.

This rule applies to employers drafting agreements and employees who sign them, whether residents or visitors working in Texas. Both parties must understand the agreement's terms and legal boundaries.

• Non-compete agreements must be supported by valid consideration, such as employment or specialized training, to be enforceable under Texas law.

• The agreements must protect legitimate business interests like trade secrets, confidential information, or customer relationships.

• Reasonableness in time, geographic area, and scope of activity restricted is required to avoid being overly broad or punitive.

• Employees must voluntarily agree to the terms without coercion for the contract to hold up in court.

• Employers cannot use non-competes to simply limit competition without a legitimate business justification.

Thus, while non-compete agreements are legal, they must be carefully crafted to comply with Texas standards.

What Does Texas State Law Say About Non-Compete Agreements?

Texas law regulates non-compete agreements primarily through the Texas Business and Commerce Code, which outlines enforceability conditions. The law balances protecting business interests with preventing unfair employee restrictions.

In practice, courts scrutinize these agreements to ensure they are reasonable and supported by adequate consideration. Employers must demonstrate a legitimate business interest to enforce restrictions.

• The Texas Business and Commerce Code requires non-competes to be ancillary to or part of an otherwise enforceable agreement, such as an employment contract.

• Courts assess if the agreement protects trade secrets, confidential information, or goodwill associated with the employer’s business.

• Reasonableness is judged by duration, geographic scope, and the type of activities restricted, with typical durations ranging from six months to two years.

• Employers must provide something of value, like specialized training or employment, as consideration for the agreement.

• Texas courts may modify overly broad agreements to make them reasonable rather than voiding them entirely.

These laws ensure non-competes are fair and tailored to legitimate business needs.

Does Federal Law Affect the Legality of Non-Compete Agreements in Texas?

Federal law generally does not regulate non-compete agreements, leaving enforcement and legality to state law. However, certain federal statutes and policies may indirectly influence their application.

For example, the Federal Trade Commission (FTC) has proposed rules to limit non-compete clauses nationally, but as of 2026, these have not overridden Texas law.

• Federal law does not explicitly prohibit or regulate non-compete agreements, so Texas state law governs their enforceability.

• The FTC’s proposed rule to ban most non-competes has not been enacted, so it does not currently affect Texas agreements.

• Federal labor laws like the National Labor Relations Act may impact collective bargaining agreements but generally do not apply to individual non-competes.

• Federal courts may hear cases involving non-competes if related to interstate commerce but will apply Texas law to determine enforceability.

• Until federal legislation changes, Texas law remains the primary authority on non-compete agreements in the state.

Therefore, federal law currently defers to Texas regulations on non-competes.

Which Law Applies in Common Real-World Scenarios?

In everyday situations, Texas state law governs non-compete agreements involving employees and employers within the state. The law applies differently depending on the context of use and parties involved.

Understanding which law applies helps clarify rights and obligations in various scenarios.

• If an employee signs a non-compete while working for a Texas company, Texas law governs enforceability regardless of where the employee lives.

• Buying or selling a business in Texas often involves non-compete clauses governed by state law to protect goodwill and customer relationships.

• Transporting employees or contracts across state lines does not change the governing law if the agreement specifies Texas jurisdiction and the work is Texas-based.

• Using a non-compete agreement for remote workers may require careful analysis of applicable state laws, but Texas law applies if the employer is Texas-based and the contract specifies Texas law.

• Employers and employees should ensure agreements clearly state Texas law governs to avoid conflicts with other states’ laws.

These examples highlight the importance of Texas law in most practical non-compete situations.

Restrictions and Conditions You Must Follow

Texas imposes specific restrictions and conditions on non-compete agreements to ensure fairness and legality. These limitations protect employees from overly burdensome contracts.

Employers must adhere to these conditions when drafting and enforcing non-competes.

• Non-compete agreements must be reasonable in duration, typically not exceeding two years, to be enforceable.

• Geographic scope must be limited to areas where the employer conducts business or has legitimate interests.

• The scope of restricted activities must be narrowly tailored to protect only legitimate business interests.

• Employers must provide consideration, such as initial employment or specialized training, to support the agreement.

• Agreements cannot impose undue hardship on employees or prevent them from earning a livelihood without justification.

Following these conditions helps ensure non-competes are valid and enforceable in Texas.

Penalties for Violating the Law in Texas

Violating Texas non-compete laws can lead to various legal consequences, including civil penalties and court-ordered remedies. Enforcement typically occurs through litigation initiated by employers.

Understanding potential penalties helps parties assess risks associated with non-compete agreements.

• Employers who enforce overly broad or unreasonable non-competes risk having the agreement invalidated by courts.

• Employees violating valid non-competes may face injunctions preventing them from working in restricted roles or areas.

• Civil lawsuits can result in monetary damages, including lost profits and attorney fees, for breach of contract.

• Texas courts may modify or "blue pencil" agreements to make them reasonable rather than voiding them entirely.

• Enforcement actions usually begin with a cease-and-desist letter followed by litigation if unresolved.

Penalties focus on contract enforcement rather than criminal sanctions.

Common Situations Where People Get Confused

Many misunderstandings arise around non-compete agreements, especially regarding their scope, enforceability, and interaction with other laws. Clarifying these points is essential for both employers and employees.

Addressing common confusions helps prevent disputes and legal issues.

• Some believe all non-competes are automatically enforceable, but Texas law requires reasonableness and legitimate business interests.

• Confusion exists between "legal to own" and "legal to enforce," as courts may refuse to enforce overly broad agreements.

• Interstate travel with a non-compete does not nullify Texas law if the agreement specifies Texas jurisdiction.

• Online or remote work complicates applicability, but Texas law applies if the employer is Texas-based and the contract states so.

• Federal law myths suggest non-competes are banned nationwide, but Texas law currently governs enforceability.

Understanding these nuances reduces confusion and legal risk.

Recent Legal Changes or Court Decisions

Texas has not enacted significant recent changes to non-compete laws, but courts continue to interpret enforceability standards. No major legislative reforms have altered the legal landscape as of 2026.

Staying updated on court decisions is important for employers and employees relying on non-compete agreements.

• Texas courts have reaffirmed the importance of reasonableness and legitimate business interests in recent rulings.

• No new statutes have significantly changed non-compete enforceability requirements in the past few years.

• The Texas legislature has not passed laws limiting or expanding non-compete agreements beyond existing statutes.

• Federal proposals to restrict non-competes have not yet impacted Texas law or enforcement.

• Legal experts recommend monitoring court decisions for evolving interpretations of non-compete clauses.

Overall, the legal framework remains stable with ongoing judicial clarification.

Practical Examples

If you live in Texas and sign a non-compete agreement with your employer, Texas law governs the agreement. If the contract is reasonable in scope and duration, it will likely be enforceable, protecting the employer’s business interests.

If you bought a business in another state and bring a non-compete agreement into Texas, the agreement’s enforceability depends on Texas law if the parties agree to Texas jurisdiction and the business operates primarily in Texas.

• An employee working in Houston signs a two-year non-compete restricting work within 50 miles; this is likely enforceable under Texas law if it protects trade secrets.

• A business owner selling a Dallas company includes a non-compete preventing the seller from competing statewide for one year; Texas courts will evaluate reasonableness and enforce accordingly.

These examples illustrate how Texas law applies in real-world non-compete situations.

Conclusion

Non-compete agreements are legal and commonly used in Texas to protect business interests. However, their enforceability depends on meeting specific statutory requirements, including reasonableness and legitimate business justification.

Employers and employees must carefully consider these factors when drafting or signing non-compete agreements. Because Texas law governs these contracts, understanding state-specific rules is essential to avoid unenforceable provisions and potential legal disputes.

FAQs

Are non-compete agreements enforceable in Texas?

Yes, non-compete agreements are enforceable in Texas if they protect legitimate business interests and are reasonable in scope, duration, and geographic area. They must also be supported by valid consideration.

What restrictions apply to non-compete agreements in Texas?

Texas requires non-competes to be reasonable in time, geographic scope, and activity restrictions. They must protect legitimate business interests and be supported by consideration like employment or training.

Can an employee refuse to sign a non-compete agreement in Texas?

An employee can refuse, but refusal may affect employment opportunities. Employers must provide consideration for the agreement to be enforceable if signed voluntarily.

Do non-compete agreements apply to remote workers in Texas?

Yes, if the employer is Texas-based and the agreement specifies Texas law, non-competes can apply to remote workers, but enforceability depends on reasonableness and business interests.

What happens if a non-compete agreement is violated in Texas?

Violations can lead to civil lawsuits, injunctions preventing competition, monetary damages, and attorney fees. Courts may modify agreements to make them reasonable rather than voiding them.