Non-Compete Agreements in 2026: What Every Business Owner Needs to Know

The legal landscape around non-compete agreements has shifted significantly over the past 18 months – and if you haven’t reviewed your agreements recently, you may be operating on assumptions that no longer hold. Whether you’re trying to protect your business from a departing employee or you’ve inherited a stack of agreements drafted five years ago, here’s what the current state of the law actually means for you.

The FTC’s Ban Is Dead – But That Doesn’t Mean Business as Usual

In April 2024, the Federal Trade Commission announced a sweeping rule that would have banned virtually all non-compete agreements nationwide. It never took effect. On August 20, 2024, U.S. District Judge Ada Brown in the Northern District of Texas set aside the rule in Ryan LLC v. Federal Trade Commission, holding that the FTC exceeded its statutory authority and that the rule was arbitrary and capricious under the Administrative Procedure Act.

For businesses that celebrated that ruling, a word of caution: the FTC hasn’t walked away from this space. Under Section 5 of the FTC Act, the agency retains authority to challenge specific non-compete agreements it considers unfair on a case-by-case basis. FTC Chairman Andrew Ferguson has made clear that enforcement will focus on agreements that cause the most damage – particularly those applied to lower-wage workers and those in the healthcare sector.

So while there’s no federal ban, federal scrutiny has not disappeared. It’s simply changed shape.

The Patchwork of State Law Is Getting More Complex

With no federal floor, non-compete enforceability now depends almost entirely on where your business operates and where your employees work. State legislatures have been increasingly active: in 2025 alone, 13 states enacted or implemented legislation affecting non-compete enforceability, with more anticipated in 2026 – particularly targeting healthcare workers and imposing salary thresholds below which non-competes cannot be used.

Broadly speaking, states fall into three categories. Full-ban states – California, North Dakota, Minnesota, and Oklahoma among them – prohibit employment non-competes outright, with narrow exceptions for the sale of a business. Income-threshold states permit non-competes only for employees earning above specified salary levels. And traditional enforcement states allow non-competes subject to reasonableness standards – a category that includes Texas.

If your business operates across state lines, an agreement that works in Texas may be wholly unenforceable the moment your employee relocates or works remotely from another jurisdiction. Choice-of-law clauses help, but they don’t always override the law of the state where the employee actually performs their work.

What Texas Law Actually Requires

Texas remains a state where properly drafted non-compete agreements are enforceable – but the standard is more demanding than many business owners realize.

Under the Texas Business and Commerce Code, a non-compete covenant must meet three requirements. First, it must be ancillary to an otherwise enforceable agreement. A standalone non-compete signed at the time of a promotion, with no corresponding exchange of value, will typically fail. The most reliable method is tying the non-compete to a concurrent agreement to provide confidential information, trade secrets, or specialized training – and the employer must actually follow through on that promise. Second, it must be reasonable as to time, geographic area, and scope of activity. Courts have generally treated durations of one to two years as presumptively reasonable; geographic restrictions must be tied to where the employee actually worked or the employer’s genuine competitive footprint. Statewide or nationwide restrictions on entry-level employees rarely survive scrutiny. Third, it must be no more restrictive than necessary to protect a legitimate business interest. The scope of prohibited activity must relate to what the employee actually did – not simply bar them from working in an entire industry.

Consideration matters. Texas courts have consistently held that at-will employment alone, a pay raise, or a bonus are generally insufficient consideration for a non-compete signed by an existing employee. Meaningful consideration – access to proprietary client lists, enrollment in a specialized training program, or an equity grant – significantly strengthens enforceability.

The blue-pencil doctrine cuts both ways. Under Texas law, if a court finds your non-compete overly broad, it is required to reform the covenant – narrowing it to a reasonable scope and enforcing that modified version. Your overbroad agreement won’t simply be thrown out, but the reformed version may afford far less protection than you intended. Draft carefully; don’t rely on blue-penciling to salvage a sloppy agreement.

A New Wrinkle for Healthcare Businesses

If your business involves healthcare practitioners, the changes are even more significant. SB 1318 – the Texas Covenants Not to Compete Act – took effect September 1, 2025, imposing additional statutory restrictions for non-competes with healthcare practitioners. Geographic restrictions are capped at a five-mile radius from the practitioner’s primary practice location. Agreements cannot be used to prevent a practitioner from accessing patient records when authorized by the patient.

Layered on top of that are the FTC’s September 2025 warning letters, which specifically called out healthcare employers and staffing firms. If you operate a medical practice, dental practice, or any healthcare-adjacent business and haven’t reviewed your agreements since August 2025, that review is overdue.

The Practical Takeaways

Audit your existing agreements now. Many businesses are operating with templates drafted years ago that haven’t been updated to reflect current law. An agreement that seemed airtight in 2020 may have critical gaps today – particularly around the consideration provided at signing, geographic scope, and healthcare-specific restrictions. A one-time review is a modest investment compared to the cost of litigating an unenforceable agreement.

Don’t over-rely on non-competes. In an environment of increasing restriction, sophisticated businesses are placing greater emphasis on narrowly tailored non-disclosure agreements (NDAs) and non-solicitation agreements – provisions that prohibit departing employees from soliciting the firm’s clients or recruiting its employees. These tools are generally more defensible than broad non-competes, survive better across state lines, and are less likely to be invalidated by a single court ruling.

Think multistate from the start. If there’s any possibility an employee might work remotely or relocate, structure the agreement with that in mind. Identify which state’s law governs, understand whether that choice will be honored where the employee actually works, and consider whether the agreement needs to comply with the law of multiple jurisdictions to be useful.

When you enforce, enforce promptly. Non-competes are most effectively enforced through a request for temporary injunctive relief filed quickly after a departure. Delay undermines your argument that the threatened harm is irreparable – courts have denied injunctions where the employer waited weeks before acting while competitive harm continued to mount.

The Bottom Line

The death of the FTC’s national ban has given some businesses a false sense that the non-compete landscape has stabilized. It hasn’t. The patchwork of state law is growing more complex by the year, federal enforcement has shifted to a case-by-case model targeting the most egregious agreements, and Texas has added new statutory restrictions for healthcare practitioners. If you haven’t reviewed your non-compete agreements in the past 12 months, now is the time – before a key employee departs and you discover your protection isn’t what you thought it was.

We work with businesses across a range of industries to draft, audit, and enforce non-compete and confidentiality agreements. If you’d like a review of your current agreements or help building a protection strategy that holds up in court, we’d welcome the conversation.

This article is for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and are subject to change. Nothing in this post creates an attorney-client relationship. Consult a qualified attorney before making decisions based on this content.