Restrictive Covenants and Confidentiality Agreements in Texas: What Employers and Employees Must Know

Texas is an at-will employment law state. Many people work without any employment contract. At the same time, many employees have contracts. It is not uncommon for employment contracts in Texas to have restrictive covenants and/or confidentiality clauses. Here, our Houston business law attorney explains the key things employers and employees in Texas should know about restrictive covenants and confidentiality agreements. 

What is a Restrictive Covenant?

As explained by the Texas State Law Library, a restrictive covenant is a contract provision that limits an employee’s post-employment conduct. It is not uncommon for employment contracts to include some form of a restrictive covenant. The most common example is a non-compete agreement. Other examples include nonsolicitation clauses and prohibitions on misuse of proprietary information. 

Broadly explained, the purpose of a restrictive covenant is to prevent an employee from harming the employer’s competitive position after the employment relationship ends. These provisions can be legally enforceable in Texas, but they meet specific legal standards. As a general rule, restrictive covenants must protect a legitimate business interest and must be reasonably tailored in scope, duration, and geography. 

Note: An employer that uses a restrictive covenant in its agreements must ensure that it is properly drafted. An unenforceable covenant exposes the employer to litigation risk and provides no meaningful constraint on the employee. 

What is a Confidentiality Agreement?

A confidentiality agreement is another relatively common type of contract provision in Texas. It protects sensitive information that an employee receives during the course of employment. Some of the most common examples include trade secrets, customer lists, pricing structures, internal research, source code, manufacturing processes, and strategic business plans. 

The agreement obligates the employee to avoid disclosure or misuse of this information. Unlike a restrictive covenant, a confidentiality agreement can apply during employment and after separation. Texas law recognizes strong protections for trade secrets under the Texas Uniform Trade Secrets Act. A confidentiality agreement strengthens those protections by defining the categories of confidential information and clarifying the employee’s duties. 

Confidentiality provisions can be enforceable in employment agreements in Texas, but only when certain criteria are met. Most notably, these agreements must avoid overly broad definitions that capture publicly available information. Courts enforce confidentiality obligations when the agreement provides clear notice, protects non-public material, and aligns with established trade secret principles. 

An Overview of Texas Labor Law: Restrictive Covenants

Employment contracts are largely regulated at the state level. A restrictive covenant and/or a confidentiality agreement must meet the requirements of Texas law in order to be legally valid. In our state, the governing statute is Tex. Bus. & Com. Code § 15.50. Courts interpret the statute carefully because Texas public policy favors employee mobility and free competition. Still, courts will uphold properly drafted contracts. Here are some key things that employers and employees should know about Texas law on restrictive covenants: 

• Legitimate Business is Required: In Texas, the employer must show a legitimate business interest. Courts in the state accept interests such as trade secrets, confidential information, customer goodwill, and specialized training. A covenant that protects only from ordinary competition fails the test. Employers in Houston and elsewhere in Texas must clearly establish their legitimate business interest. 
• Ancillary-to-an-Enforceable-Agreement Requirement: A restrictive covenant must be ancillary to an otherwise enforceable agreement under Tex. Bus. & Com. Code § 15.50(a). In other words, the employer must provide consideration that creates a binding contractual relationship. Typical consideration includes access to trade secrets, confidential data, or specialized training. The restrictive covenant must directly relate to the consideration provided as part of the employment agreement.
• Reasonableness Requirement: Restrictive covenants must be “reasonable” in their scope in order to be legally enforceable in Texas. The covenant must be reasonable in scope. Along with other things, state courts analyze the activities that the clause prohibits. A covenant that bars an employee from working in an entire industry when the work performed was narrow will likely be held unenforceable. 
• Geographic Limitation: Geographic restrictions must reflect the employer’s actual market area. Texas courts enforce covenants that closely track the territory in which the employee developed customer relationships. Restrictions covering the entire state or multiple states often fail unless the employer’s business genuinely operates at that scale.
• Limited Duration: The time period must be reasonable. Texas courts commonly uphold six-month to two-year limitations for noncompete and nonsolicitation provisions. Longer periods may be enforceable in limited circumstances when substantial trade secrets or high-level executive roles are involved. A restrictive covenant that has an indefinite duration will generally not be legally enforceable in Texas as a matter of state policy. 

Texas courts have the power to reform overbroad covenants. Under Tex. Bus. & Com. Code § 15.51(c), the court may modify an unreasonable restriction to make it enforceable. Reformation allows enforcement of a narrower covenant but may limit the employer’s right to obtain damages for conduct that occurred before the modification. If you have any questions or concerns about the reformation of a restrictive covenant in Texas, a top Houston employment lawyer can help. 

How the Business and Employment Team at SimpleLawTX Can Help

SimpleLawTX is a boutique law firm that handles the full range of employment law matters in Texas. Our firm represents both employers and employees. If you have any questions about restrictive covenants and/or confidentiality agreements, we are more than ready to help you determine the best path forward. Your initial strategy session with our Houston employment law attorney is completely confidential and carries no additional legal obligations. 

Speak to Our Houston Employment Lawyer Today

At SimpleLawTX, our Houston employment attorney is standing by, ready to protect your rights and your interests. If you have any questions about restrictive covenants and/or confidentiality agreements, we are here as a legal resource. Contact us today to set up a fully confidential strategy session. With an office in Houston, we provide business and employment law representation throughout Harris County and Southeast Texas.