Texas Non-Competes After the FTC Rule

The federal rule that would have banned most non-competes is gone, Texas tightened the rules for
health-care practitioners, and the Texas statute that governs ordinary commercial covenants never
changed at all. If you signed a non-compete, or asked someone to, the analysis is the same one it was
in 2023 — and it runs through Texas law, not federal.

Updated 2026-08-27. This is an area where the law has moved twice in two years, and this page is
reviewed quarterly.

The FTC issued its Non-Compete Clause Rule in April 2024. In August 2024 the U.S. District Court
for the Northern District of Texas held the rule unlawful. On 2025-09-05 the Commission moved to
dismiss its appeals in Ryan, LLC v. FTC in the Fifth Circuit and to accede to vacatur of the rule
(FTC press release, September 2025;
U.S. Chamber case page).

The practical effect is a return to state-law governance. With one qualification worth keeping in
mind: the Commission's position is a matter of agency discretion rather than a holding of the Supreme
Court, and the FTC's non-compete page reports continuing
enforcement-oriented activity outside the rule. A future Commission could act again.

"Notwithstanding Section 15.05 and subject to any applicable provision of Subsection (b) and Section
15.501, 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."
— Tex. Bus. & Com. Code § 15.50(a)

Two requirements, and both do work. The covenant must be ancillary to an otherwise enforceable
agreement at the time it is made, and its limits on time, area and activity must be reasonable and
no greater than necessary. Neither of those was affected by anything the FTC did.

SB 1318 (2025) was signed 2025-06-20 and took effect 2025-09-01, applying to covenants entered
into or renewed on or after that date. It is not one rule for "health-care workers" — it is two
overlapping sets, and which one applies depends on the licence.

Physicians are dealt with in Tex. Bus. & Com. Code § 15.50(b) and (d). Dentists, licensed
professional and vocational nurses, and physician assistants are covered by the new § 15.501. Other
professions sometimes described as health-care practitioners are not covered by either.

For every covered practitioner, the covenant must offer a buyout capped at that practitioner's
total annual salary and wages at termination, expire no later than one year after termination,
reach no further than five miles from the practitioner's primary practice location before
termination, and state its terms clearly and conspicuously in writing (§§ 15.50(b)(2), (4);
15.501(b)). The buyout is an option the practitioner may exercise to buy their way out of the
restriction — not severance the employer pays, and the statute sets a ceiling rather than a price.

The discharge rule is physician-only. Under § 15.50(d), a medical-practice covenant is void and
unenforceable where the physician is involuntarily discharged without good cause — good cause being
tied to a reasonable basis directly related to conduct, performance and the employment record.
§ 15.501 contains no equivalent for dentists, nurses or physician assistants.

And two carve-outs are easy to miss. Administrative management is excluded from the "practice of
medicine" for subsection (b) purposes, and subsection (b) does not apply to ownership interests in
licensed hospitals or ambulatory surgical centres (§ 15.50(b-1), (c)).

If your closely held company is a medical, dental, or veterinary practice, this is the paragraph
that matters most to you — and it is the one to check against the statute rather than against an
article.

Almost everything written about non-competes is written about employees. The situation that produces
the most difficult Texas cases is different: a co-owner leaves, and takes something with them.

Three things change when the departing person is an owner rather than an employee.

The covenant may sit in a different document. An employee's non-compete is in an employment
agreement. An owner's may be in the company agreement, in a buy-sell provision, or in the purchase
agreement from a buyout — and the "otherwise enforceable agreement" analysis under
§ 15.50(a)
starts from whichever one it is in.

The covenant is not the only theory, and often not the best one. Texas's trade secrets statute
defines "improper means" to include "breach or inducement of a breach of a duty to maintain
secrecy"
(Tex. Civ. Prac. & Rem. Code § 134A.002).
Where a departing owner was the company's agent, that duty can exist without a signature — so a
claim can proceed without the covenant analysis at all. Whether it does depends on the company
agreement, which since May 2025 may restrict or eliminate the duty outright
(Tex. Bus. Orgs. Code § 101.401). In a business divorce where one owner leaves with the customer
list, that is frequently the faster route —
what a departing co-owner owes when they take the client list
works through it.

Selling a business does not take its non-compete outside the Act. Section 15.50(a) still requires
an otherwise enforceable agreement and reasonable limits on duration, territory and restricted
activity, and § 15.52 makes the statutory criteria exclusive — older cases inform what counts as
reasonable, but there is no separate sale-of-business exemption.

The sale context does change how reasonableness is applied. A buyer pays for goodwill, including
the customer relationships that came with it, and a seller returning immediately to the market can
undermine the thing that was bought. Texas courts have accordingly been more receptive to lengthy
restrictions attached to a genuine sale than to ordinary employment restrictions (Heritage
Operating, L.P. v. Rhine Bros., LLC, No. 02-10-00474-CV, 2012 WL 2344864, at *4–6 (Tex. App.—Fort
Worth June 21, 2012, no pet.) (mem. op. on reh'g)).

There is no safe number. Chandler v. Mastercraft Dental Corp. of Texas, Inc., 739 S.W.2d 460,
463–65 (Tex. App.—Fort Worth 1987, writ denied) affirmed a five-year restraint. Heritage rejected a
finding that a negotiated ten-year restriction was unreasonable on the evidence presented. Applying
Texas law, the Fifth Circuit upheld nationwide coverage for a business that marketed and sold
nationwide (Vais Arms, Inc. v. Vais, 383 F.3d 287, 295–96 (5th Cir. 2004)) — persuasive, not
binding on a Texas state court. And those are separate holdings on separate questions:
Heritage decided duration, Vais decided geography. Neither approves a ten-year nationwide
covenant.

Staying on as an employee or consultant does not automatically convert a sale covenant into an
employment one. Chandler itself involved sellers who stayed on under separate agreements, 739
S.W.2d at 462–63. What matters is the primary purpose of the agreement the covenant sits in, and
it decides who carries the burden: for a personal-services agreement, the party enforcing must
prove enforceability; otherwise the restrained party must prove it is unenforceable
(§ 15.51(b)).

Which is the practical drafting point. Where a sale and a services arrangement run together, the
documents should be explicit about which consideration, which protected interest and which restriction
belongs to which agreement.

Almost nothing, and that is the useful answer.

A covenant signed before April 2024 was never voided. The FTC rule would have required employers to
notify workers that existing covenants were unenforceable; the rule never took effect, so no notice was
required and none of it happened.

A notice sent anyway is a fact somebody will point at. Some employers issued the notification in
2024 in anticipation. Whether a letter telling a worker their covenant is unenforceable affects the
covenant is a question about waiver and estoppel rather than about the FTC, and it is worth raising with
counsel if your company sent one.

A health-care covenant signed or renewed on or after 2025-09-01 is in a different regime from one
signed before it, because SB 1318 applies by its terms to agreements entered into or renewed on or after
that date. Renewal is the word to watch — an automatic annual renewal may bring an older agreement
inside the new rules.

Nothing about the last two years makes an unreasonable Texas covenant enforceable, and nothing makes a
reasonable one unenforceable. The questions are the same ones § 15.50(a) has always posed: what
agreement is it ancillary to, and are the time, area and activity limits no broader than the interest
being protected.

If you are the owner leaving, the more useful question is usually not whether the covenant holds. It is
what else you are exposed to — the confidentiality obligation, the trade secret claim, and the duties
you owed while you were still an owner. Those do not depend on the covenant and they do not go away
when it fails.

If you are the owner staying, the same point runs the other way:
what to do in the first seventy-two hours
matters more than what the covenant says, because the covenant will still be there next week and the
evidence may not be.

Co-owner departures sit between the trade secrets practice and the dispute practice, which is
our Texas partner dispute practice. If the departure is part of a
larger separation, what a locked-in Texas owner can actually do is the
wider picture.

Disclaimer. This publication is provided by Amini & Conant, LLP for educational and informational purposes only and is not intended and should not be construed as legal advice. Should the reader seek further analysis of the subject matter or answers to specific questions about the subject matter, please contact the author at neema@aminiconant.com. This publication is considered advertising under applicable state laws.

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