Few employment provisions get litigated more often than the non-compete. Two years of federal turbulence (an FTC ban, a Dallas court striking it down, an appeal the agency eventually dropped) have left employers asking the same question they were asking before: what will Texas courts actually enforce? The answer has not changed as much as the headlines suggest, but several pieces have moved. A Dallas business law attorney drafting or reviewing a restrictive covenant today works with a different rulebook than two years ago, especially in healthcare.
The Federal Story, Briefly
The FTC issued its non-compete rule in April 2024, declaring nearly all employee non-competes unfair methods of competition. On August 20, 2024, Judge Ada Brown of the Northern District of Texas struck it down in Ryan, LLC v. FTC. The agency appealed to the Fifth Circuit, then reversed course after the change in administration. On September 5, 2025, the FTC voted 3-1 to dismiss its appeal. The Fifth Circuit closed the case three days later, and the FTC formally removed the rule from the Code of Federal Regulations on February 12, 2026.
That ended the nationwide ban. It did not end federal interest in the topic. The FTC has continued to bring case-by-case actions under Section 5 of the FTC Act, including against Gateway Services and, in April 2026, Rollins, Inc. Employers using non-competes at scale, or against low-wage workers, should expect that scrutiny to continue. Day-to-day enforcement has otherwise returned entirely to state law.
What Texas Actually Requires
Texas governs non-competes through Sections 15.50 through 15.52 of the Business and Commerce Code. A covenant is enforceable if two conditions are met:
- It is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made
- It contains limitations on time, geographic area, and scope of activity that are reasonable and do not impose a greater restraint than necessary to protect the employer’s goodwill or business interest
The “ancillary” requirement was the hardest part for years. The Texas Supreme Court resolved most of the uncertainty in Sheshunoff (2006) and Marsh USA v. Cook (2011), holding that a promise to provide confidential information or specialized training, later actually performed, satisfies the requirement. Continued at-will employment by itself does not.
Practical translation: the non-compete must be tied to real consideration, usually the employer’s promise to share trade secrets, customer lists, pricing models, or proprietary methods. Generic offer-letter language tends to fail.
What “Reasonable” Means in Practice
Reasonableness gets argued on three axes, and a few practical benchmarks hold up in most disputes.
Time. One to two years is the comfortable zone for most industries. Five-year restrictions get reformed or struck. Two-year non-competes for sales executives with significant customer relationships routinely survive; the same restriction on a junior employee with no customer contact often does not.
Geography. The restriction has to match where the employee actually worked or had material influence. A statewide non-compete for a salesperson who only covered Dallas-Fort Worth will get cut down. For a CEO of a national company, statewide or broader can hold up.
Scope of activity. The restricted activities have to match what the employee actually did. A clause barring an engineer from “any work in technology” is too broad. One that bars them from working on competing products in the same vertical can be enforceable.
When a court finds a covenant overbroad, Section 15.51(c) allows reformation. Texas is one of the few states where judges rewrite the offending terms rather than strike the entire clause. That makes overdrafted Texas non-competes survivable, but the employer cannot collect damages for the pre-reformation conduct, which removes most of the leverage.
Non-Solicitation Agreements
Non-solicitation of customers is treated as a type of covenant not to compete under Texas law, so it has to satisfy the same statutory test. The reasonableness analysis is usually friendlier. A 12 to 24 month restriction on soliciting customers the employee actually serviced, supported by access to confidential customer information, is one of the more defensible restrictions on the books.
Employee non-solicitation (no-hire) clauses sit in a more contested area. They can be enforceable when narrowly drawn to employees the departing person actually worked with or supervised. Blanket prohibitions on hiring anyone from the former employer rarely hold up.
The Healthcare Sector Got Special Treatment
Texas Senate Bill 1318 took effect on September 1, 2025, and changed the rules for licensed healthcare practitioners. The bill amended Section 15.50 and added a new Section 15.501. The key changes:
- Physician non-competes capped at one year and a five-mile radius from the practice location
- Mandatory buyout option capped at the physician’s annual salary and wages
- Non-compete is void and unenforceable if the physician is involuntarily discharged without good cause
- Similar rules now extend to dentists, nurses, and physician assistants for the first time
The changes apply only to agreements entered into or renewed on or after September 1, 2025. Existing healthcare agreements remain under the older framework, but employers renewing them will get pulled into the new regime.
Drafting Restrictive Covenants in 2026
The practical takeaway: federal preemption is off the table, but the state-level analysis is more demanding than it was, especially for healthcare and for any agreement that looks aggressive on its face. The right move on existing templates is to read them against current case law and against Section 15.50 as amended, then tighten the time, geography, and scope until each provision can be defended on its own.
For background reading, the Texas Business and Commerce Code is published at statutes.capitol.texas.gov, and the State Bar of Texas Labor and Employment Section maintains current practice materials. Before sending a cease-and-desist letter on an existing non-compete, or before rolling out a new template, having a Dallas business law attorney pressure-test the language is the cheap insurance step. Overbroad agreements hand the leverage to the departing employee. Tight, well-drafted ones keep it with the company.
