After the nationwide injunction barring the Federal Trade Commission (FTC) Noncompete ban, we reported our anticipation that state legislatures would likely introduce legislation restricting the use of noncompetes.
As expected New York, Washington, Virginia, Ohio, and Wyoming have all introduced—or enacted—legislation in 2025 aimed at limiting noncompetes and other restrictive covenants. On March 7, 2025, Texas joined this growing list of states when the Texas legislature introduced Texas House Bill 4067 (the “Bill”). If enacted, the Bill would amend Texas’s Business & Commerce Code by adding sections 15.501, 15.502, and 15.503 to broadly prohibit noncompetes against all “workers” and would prohibit noncompetes with “senior executives” after September 1, 2025. If passed, the law would take effect on September 1, 2025.
The Bill prohibits a person (an undefined term under the Bill) from entering into or enforcing a noncompete with a “worker,” regardless of when such covenants were entered into. The Bill broadly defines a “worker” as “an individual who works or previously worked, without regard to whether the individual was paid, to the worker’s title, or to the worker’s status under any other state or federal laws, including whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a person.”
The Bill provides a limited exception to allow for certain noncompetes with “senior executives.” A “senior executive” is defined as someone in a “policy-making position” who earned at least $151,164 in total annual compensation in the previous year. The Bill defines “policy-making position” to include CEOs or presidents, other officers with authority to make significant policy decisions, and certain officers of subsidiaries or affiliates with similar authority. Agreements made with senior executives before September 1, 2025, will remain enforceable. However, if enacted, the Bill will prohibit employers from entering into or enforcing noncompete agreements with senior executives after September 1, 2025.
The Bill is strikingly similar to the proposed FTC Noncompete Rule issued in April 2024 in which the FTC attempted to ban all existing and new noncompetes, with a few limited exceptions, including for existing noncompetes with senior executives and noncompetes entered into in connection with the sale of a business. Under the proposed FTC Noncompete Rule, “senior executive” was similarly defined as a “worker who was in a policy-making position” and who received total annual compensation of more than $151,164.
In addition to the exception for noncompetes with senior executives entered into before September 1, 2025, the Bill does not apply to noncompetes entered into by a person under a bona fide sale of: (1) a business entity; (2) the person’s ownership interest in a business entity; or (3) all or substantially all of the business entity’s operating assets.
If the Bill becomes law, employers will be required to notify affected workers by January 1, 2026 that their noncompete agreement is no longer enforceable. The notice must be “clear and conspicuous” and must identify the parties subject to the agreement and be delivered by hand, mail, e-mail, or text message to the worker.
As we reported with the FTC Noncompete Rule, we do not think that the Bill will gain much traction in Texas, a traditionally employer-friendly state. Even if it does pass, there is a strong likelihood that Governor Abbott will veto the Bill. While there may not be a strong likelihood of the Bill becoming law, the introduction of the Bill in Texas highlights that states are likely to continue to introduce legislation aimed at restricting or limiting the use of noncompetes. We will continue to monitor the Bill and provide updates.
Stay tuned for other state bills relating to employer noncompetes, including another bill pending in the State of New York.
Gianna Dano, a Law Clerk in Epstein Becker & Green’s Newark Office (not admitted to practice), contributed to the preparation of this piece.