A non compete agreement Austin employer hands you on day one lives or dies by one statute. It isn’t a judge’s sense of fairness that decides it. Tex. Bus. & Com. Code § 15.50(a) sets the test. A covenant not to compete is enforceable only if it meets two conditions. It must be “ancillary to or part of an otherwise enforceable agreement at the time the agreement is made”. It also needs limits on time, geographical area, and scope of activity that are reasonable. Those limits can’t impose a greater restraint than necessary to protect goodwill or another business interest. Austin’s software and semiconductor employers write a lot of these covenants. So does the hair salon two doors down. The statute doesn’t care which one wrote it.
What a non compete agreement Austin court actually tests: § 15.50(a)
Arizona courts ask whether a covenant is fair under a judge-made reasonableness test, built case by case over decades. Texas didn’t leave that question to common law. The legislature wrote its own test into § 15.50(a). It told courts to apply that test, not to invent a fairness standard of their own. That’s the real contrast between the two states. It’s also why intuitions built on Arizona cases travel badly into a Texas dispute.
The statute has two moving parts. First, the covenant has to be tied to a real, otherwise enforceable agreement. That’s the “ancillary to” requirement. Second, its limits on time, geography, and scope have to be reasonable. They can’t be broader than the business actually needs. Fail either part, and the covenant is vulnerable. But “vulnerable” in Texas rarely means gone, a point covered further down.
“Ancillary to an otherwise enforceable agreement”: Marsh and Sheshunoff
The ancillary-agreement requirement sounds abstract until two Texas Supreme Court cases give it shape. In Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011), the court addressed what counts as sufficient consideration. It held that consideration for a non-compete satisfies the statutory nexus if it’s reasonably related to a protected interest. Trade secrets, confidential information, and goodwill all qualify. Stock options tied to company performance qualified too. The employer didn’t need to hand over a trade secret on day one. Tying compensation to the company’s goodwill was enough.
Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644 (Tex. 2006), speaks directly to at-will employees. Most Austin tech hires are at-will hires. Sheshunoff held that an at-will covenant becomes enforceable once the employer performs the promise made in exchange for it. An employer’s promise can look illusory on the day the offer letter is signed. It can still support the covenant later, once the employer actually follows through. In practice, a covenant signed on your first day isn’t automatically dead just because the job itself was at-will.
Time, geography, and scope: what a non compete agreement Austin court asks
Once the ancillary-agreement box is checked, § 15.50(a) turns to three reasonableness dimensions. None of them come with a fixed number in the statute. A court works through each as a question, not a formula.
Time asks how long the restriction runs, measured against how quickly the employer’s competitive advantage actually fades. Geography asks whether the restricted area matches where the employer competes, not just where the employee happened to sit. Scope of activity asks whether the covenant blocks the specific work the employee did. A covenant that reaches into unrelated roles the employee never touched goes further than that. A restriction blocking a backend engineer from ever working in sales goes further than the employer needs.
Austin’s tight cluster of chip and software employers makes the geography question interesting in practice. A covenant for a national employer competing across Texas differs from one written for a single-office shop. But the statute applies the same three-part test either way. It doesn’t scale up or down by industry.
Reformation under § 15.51(c): the non compete agreement Austin courts narrow, not void
Here’s the part of Texas law that surprises most people. An overbroad covenant under § 15.50(a) is not automatically void. § 15.51(c) tells the court what to do instead. The statute says the court “shall reform the covenant… to be reasonable”. The restraint it imposes “is not greater than necessary”. Then the court must “enforce the covenant as reformed”. The court’s first move isn’t to throw the covenant out. It’s to rewrite it down to size and enforce what’s left.
That single rule flips the intuition most people carry in from other states. A covenant that reaches too far in time, geography, or scope doesn’t hand the employee a clean win. Instead, a judge narrows the time period, shrinks the territory, or trims the restricted activities. Whatever survives that edit gets enforced.
§ 15.52 preemption: why other states’ rules don’t travel into Texas
§ 15.52 closes the loop. It covers §§ 15.50, 15.501, and 15.51. Their criteria and remedies “are exclusive and preempt other law, including common law”. Texas doesn’t run a parallel common-law reasonableness test next to the statute. The statute is the only test.
That matters for anyone bringing outside habits into an Austin dispute. An employee who moved from a state with a judge-made balancing test is working from the wrong framework. The moment a Texas covenant not to compete is at issue, that old framework doesn’t apply. Nor does it apply to an employer used to drafting under another state’s common law. § 15.50(a) and § 15.51 are where the analysis starts and ends.
The 2025 amendments: carve-outs by occupation, not a broad ban
In 2025, the Texas Legislature amended § 15.50(b) and added a new § 15.501, both through S.B. 1318 (Acts 2025, 89th Leg., R.S., ch. 816). Neither one bans non-competes outright. Instead, the legislature carved out specific occupations and gave them guardrails the general statute doesn’t provide.
For physicians, § 15.50(b) now sets three specific requirements. The buyout can’t exceed “the physician’s total annual salary and wages at the time of termination”. It must “expire not later than the one-year anniversary of the date the contract or employment has been terminated”. And it can reach no more than “a five-mile radius from the location at which the physician primarily practiced.”
The new § 15.501 took effect on September 1, 2025. It extends equivalent buyout, expiration, and geographic standards to dentists, nurses, and physician assistants. Software engineers, hardware designers, and the rest of Austin’s tech workforce got none of this. The legislature moved occupation by occupation instead of rewriting § 15.50(a) for everyone.
The federal rule that didn’t survive
Anyone who read that the FTC planned to ban non-competes nationwide is describing a rule that never took effect. A federal court in the Northern District of Texas vacated it on August 20, 2024, in Ryan LLC v. FTC. The court found the rule exceeded the FTC’s statutory authority.
The FTC didn’t keep fighting that outcome. In September 2025, the Commission voted to dismiss its own appeals and accede to the vacatur. Federal law adds nothing to the Texas analysis today. An Austin non-compete lawyer working this area is still reading §§ 15.50 through 15.52, not a federal rule.
The bottom line
Texas didn’t leave non-competes to a judge’s sense of fairness the way Arizona did. It wrote a statute and told courts to apply it. When a covenant misses the mark, courts know what to do: narrow it, don’t erase it. That’s the honest gap between what people expect walking into a dispute and how Texas law actually handles one. An overbroad restriction isn’t free money for the employee. A broad restriction isn’t automatically enforceable for the employer either. Both sides are working within a statute built to fix most covenants, not to void them outright.
Frequently asked questions
Texas asks whether the covenant is ancillary to or part of an otherwise enforceable agreement made at signing, and whether its limits on time, geography, and scope of activity are reasonable and no broader than necessary to protect goodwill or another business interest. That test comes from Tex. Bus. & Com. Code § 15.50(a), not from a judge-made fairness standard.
The Texas Supreme Court addressed this in Marsh USA Inc. v. Cook and Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson. Marsh held that consideration tied to an interest like goodwill, such as performance-based stock options, can satisfy the requirement. Sheshunoff held that an at-will employee’s covenant becomes enforceable once the employer performs the promise made in exchange for it, even if that promise looked illusory when it was signed.
No. Under § 15.51(c), a court that finds a covenant overbroad must reform it to be reasonable and to impose a restraint that is not greater than necessary, then enforce the covenant as reformed. The court’s first move is to narrow the covenant, not to erase it.
No. A federal court in the Northern District of Texas vacated the FTC’s non-compete rule on August 20, 2024, in Ryan LLC v. FTC, and in September 2025 the FTC voted to dismiss its own appeals and accede to that vacatur. Texas’s own statute, §§ 15.50 through 15.52, is the framework that applies.
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This article explains the Texas Covenants Not to Compete Act for general information only. It is not legal advice, and it does not create an attorney-client relationship. Whether any particular covenant is enforceable, or would be reformed, turns on the agreement’s own terms and the facts around it. Anyone asked to sign or facing enforcement of a non-compete in Texas should speak with a licensed Texas attorney about their own situation.
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