The State of Non-Compete Agreements in Texas

Non-compete agreements in Texas are “unlawful” under the Texas Free Enterprise and Antitrust Act (Bus. & Comm. Code sec. 15.05) if they are not reasonably limited in time, industry, and geography.

However, the Federal Trade Commission (FTC) has proposed a rule with an express preemption provision eliminating non-compete agreements altogether.  In its current form, the rule would ban employers from using post-employment non-compete clauses and require employers to rescind any such clauses.  Last week, the FTC hosted a virtual public forum examining the proposed rule, which featured speakers who have been harmed by non-compete restrictions.  The FTC rule is in the public comment period until March 20, 2023, though the FTC might extend the comment period for an additional 60 days given a request from a group of 100 businesses.

Amid this proposed rulemaking, a bipartisan coalition of U.S. Senators and U.S. Representatives has reintroduced a bill entitled the “Workforce Mobility Act of 2023,” which would narrow the use of non-compete clauses to include only instances of the dissolution of a partnership or sale of a business.  The bill charges the FTC, Department of Labor, and State Attorneys General with enforcement and includes a private right of action for employees to seek damages, injunctions, and attorney’s fees in federal court.  President Biden signaled his support for the change in his February 7, 2023 State of the Union address.

Unlike the FTC rule, the Congressional bill would not apply retroactively.  But both the proposed FTC rule and Congressional bill would generally permit other types of restrictive covenants, such as non-disclosure and non-solicitation agreements.

We will continue monitoring this developing law.

Author: Daniela Peinado Welsh

Daniela is a litigator and former federal law clerk who helps clients navigate complex disputes.