Texas Restrictive Covenant Statute
Tex. Bus. & Com. Code §§ 15.50-15.52, the exclusive Texas statutory framework for enforcement of covenants not to compete. Section 15.50 sets enforceability criteria (ancillary to enforceable agreement; reasonable in time, geography, scope). Section 15.51 governs procedures, requires reformation of overly broad covenants, and provides fee shifting in some cases. Section 15.52 preempts common-law alternatives. Marsh USA v. Cook (Tex. 2011) held that consideration reasonably related to a protectable interest, such as stock options tied to goodwill, satisfies the ancillary requirement. A 2025 amendment added limits for physicians and certain other health care practitioners.
Tex. Bus. & Com. Code §§ 15.50-15.52, the Texas Restrictive Covenant Statute, provides the exclusive framework for enforcement of covenants not to compete in Texas. Section 15.50 sets the enforceability criteria, and for covenants entered into or renewed on or after September 1, 2025, § 15.501 adds limits for dentists, nurses and physician assistants. Section 15.51 governs procedures, requires reformation of overly broad covenants, and provides fee shifting in some cases. Section 15.52 preempts common-law alternatives. Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), rejected the narrow "give rise" reading of the ancillary requirement and held that stock options tied to the employer's goodwill can support a covenant.
The Section 15.50 framework
Section 15.50(a) establishes the enforceability criteria: a covenant not to compete is enforceable if it is "ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee." The two-part test: (1) "ancillary to or part of an otherwise enforceable agreement"; (2) reasonable in time, geography, and scope.
The "ancillary to" requirement, Marsh evolution
The "ancillary to" requirement has evolved substantially: (1) Light (1994), the otherwise enforceable agreement had to be enforceable when made, so an employer's unperformed promise in at-will employment could not support a covenant; (2) Sheshunoff (2006), permitted "unilateral promises" (employer's promise to provide confidential information that ripens into binding obligation when fulfilled); (3) Marsh (2011), substantially relaxed: covenant must be "supplementary or part of" an otherwise enforceable agreement; the consideration for the covenant must be "reasonably related to an interest worthy of protection, such as trade secrets, confidential information or goodwill". In Marsh, stock options tied to the company's goodwill satisfied the requirement.
Reasonableness analysis
The reasonableness analysis examines time, geography, and scope: (1) time, judged against the interest the covenant protects; (2) geography, must be reasonably tied to where employee performed work or had customer contact; nationwide covenants difficult to enforce; (3) scope of activity, must be limited to the activities performed for the employer or competitive business; broad "any competing business" language frequently overbroad. The standard: "no greater restraint than is necessary to protect the goodwill or other business interest of the promisee."
The reformation requirement
Section 15.51(c) requires reformation of overly broad covenants, Texas courts must reform unreasonable covenants to the extent necessary to make them reasonable, rather than refusing to enforce them entirely. Calhoun v. Jack Doheny (5th Cir. 2020) confirmed reformation can occur at the preliminary injunction stage. After reformation, the court may not award damages for a breach that occurred before reformation, and relief is limited to an injunction. In a personal-services agreement, § 15.51(c) also lets the court award the employee costs and reasonable attorney's fees if the employee shows the employer knew when the agreement was signed that the limits were unreasonable and then sought to enforce the covenant to a greater extent than necessary.
Burden of proof allocation
Section 15.51(b) allocates burdens based on agreement purpose: (1) personal services agreements (employment), promisee (employer) bears burden of establishing § 15.50 criteria; (2) other agreements (sale of business, partnership exit), promisor bears burden of establishing covenant does not meet criteria.
Physician covenants, § 15.50(b)
Section 15.50(b) sets requirements for covenants against licensed physicians. The covenant must not deny access to a list of patients seen or treated within one year of termination, must provide access to medical records on patient authorization, must provide for a buyout, and must permit continuing care for a specific patient during an acute illness. For covenants entered into or renewed on or after September 1, 2025, the buyout may not exceed the physician's total annual salary and wages at termination, and the covenant must also expire within one year after termination, cover no more than a five-mile radius from the physician's primary practice location, and be clearly and conspicuously stated in writing. For those covenants, § 15.50(d) makes a physician covenant void if the physician is involuntarily discharged without good cause. Earlier covenants remain governed by prior law, which required a buyout at a reasonable price or as set by an arbitrator. Section 15.501 sets similar limits for dentists, nurses and physician assistants.
Section 15.52 preemption
Section 15.52 preempts common-law alternatives: the criteria in §§ 15.50 and 15.501 and the procedures and remedies in § 15.51 "are exclusive and preempt other law, including common law."
FTC noncompete ban, current status
The FTC issued a final rule in April 2024 attempting to ban most non-compete agreements nationwide. The rule was challenged and a federal district court set it aside in August 2024. The FTC dropped its appeals in 2025 and removed the rule in February 2026. The FTC still brings case-by-case challenges to specific non-competes under the FTC Act.
Under the post-Marsh framework, enforceability turns on the consideration given, the reasonableness of the limits and, for health care practitioners, the 2025 statutory requirements. Overbroad covenants are reformed rather than voided, but reformation bars damages for earlier breaches and can expose the employer to fee shifting under § 15.51(c).