Morales’s Noncompete Ban Spares Every One Already Signed

The text as introduced · 1,158 words

89R12707 PRL-D

By: Morales of Harris
H.B. No. 4067

A BILL TO BE ENTITLED

AN ACT

relating to prohibiting covenants not to compete against workers.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter E, Chapter 15, Business & Commerce

Code, is amended by adding Sections 15.501, 15.502, and 15.503 to

read as follows:

Sec. 15.501. DEFINITIONS. In this subchapter:

(1) "Business entity" means a partnership,

corporation, association, limited liability company, or other

legal entity, or a division or subsidiary of the entity.

(2) "Covenant not to compete" means a condition of

employment, including an oral or written contractual term or

workplace policy, that prohibits a worker from, penalizes a worker

for, or functions to prevent a worker from:

(A) seeking or accepting work in the United

States with a different person to begin after the conclusion of the

employment that includes the condition; or

(B) operating a business in the United States

after the conclusion of the employment that includes the condition.

(3) "Officer" means a president, vice president,

secretary, treasurer or principal financial officer, comptroller

or principal accounting officer, or any individual routinely

performing corresponding functions with respect to any business

entity.

(4) "Policy-making authority" means the authority to

make policy decisions that control significant aspects of a

business entity or common enterprise. The term does not include

authority limited to advising or exerting influence over policy

decisions or having final authority to make policy decisions for

only a subsidiary of or affiliate of a common enterprise.

(5) "Policy-making position":

(A) includes:

(i) a business entity's:

(a) president; or

(b) chief executive officer or the

equivalent;

(ii) any other officer of a business entity

who has policy-making authority;

(iii) any individual who has policy-making

authority for the business entity similar to an officer with

policy-making authority; or

(iv) an officer of a subsidiary or

affiliate of a business entity that is part of a common enterprise

who has policy-making authority for the common enterprise; and

(B) does not include an individual who does not

have policy-making authority over a common enterprise even if the

individual has policy-making authority over a subsidiary or

affiliate of a business entity that is part of the common

enterprise.

(6) "Preceding year" means:

(A) the most recent 52-week year;

(B) the most recent calendar year;

(C) the most recent fiscal year; or

(D) the most recent anniversary of hire year.

(7) "Senior executive" means a worker who:

(A) was in a policy-making position; and

(B) received for the employment:

(i) total annual compensation of at least

$151,164 in the preceding year;

(ii) total compensation of at least

$151,164 when annualized if the worker was employed during only

part of the preceding year; or

(iii) total compensation of at least

$151,164 when annualized in the preceding year before the worker's

departure if the worker departed from employment before the

preceding year and is subject to a covenant not to compete.

(8) "Total annual compensation" means a worker's

earnings over the preceding year, including salary, commissions,

nondiscretionary bonuses, and other nondiscretionary compensation

earned during that one-year period. The term does not include

board, lodging, or other facilities as described by 29 C.F.R.

Section 541.606 and does not include payments for medical

insurance, payments for life insurance, contributions to

retirement plans, or the cost of other similar benefits.

(9) "Worker" means an individual who works or who

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 term includes an individual who works for a franchisee or

franchisor, but does not include a franchisee in the context of a

franchisee-franchisor relationship.

Sec. 15.502. COVENANTS NOT TO COMPETE AGAINST WORKERS

PROHIBITED. (a) This subsection applies only to a worker who is

not a senior executive. A person may not:

(1) enter into or attempt to enter into a covenant not

to compete with the worker;

(2) enforce or attempt to enforce a covenant not to

compete against the worker; or

(3) represent that the worker is subject to a covenant

not to compete.

(b) This subsection applies only to a senior executive. A

person may not:

(1) enter into or attempt to enter into a covenant not

to compete with the senior executive;

(2) enforce or attempt to enforce a covenant not to

compete entered into after September 1, 2025, against a senior

executive; or

(3) represent that the senior executive is subject to

a covenant not to compete, where the covenant not to compete was

entered into after September 1, 2025.

(c) A covenant not to compete entered into by a worker in

violation of this section is void and unenforceable.

(d) This section does not apply to a covenant not to compete

that is 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 a business entity's

operating assets.

Sec. 15.503. NOTICE REQUIRED. (a) Not later than January

1, 2026, a person who entered into a covenant not to compete with a

worker that is void and unenforceable under Section 15.502 shall

provide clear and conspicuous notice to the worker that the

worker's covenant not to compete is void and unenforceable.

(b) The notice required by this section must:

(1) identify the person who entered into the covenant

not to compete with the worker; and

(2) be delivered:

(A) on paper by hand to the worker;

(B) by mail at the worker's last known personal

street address;

(C) by e-mail at an e-mail address belonging to

the worker, including the worker's:

(i) current work e-mail address; or

(ii) last known personal e-mail address; or

(D) by text message at a mobile telephone number

belonging to the worker.

(c) If a person required to provide notice under this

section has no record of a worker's street address, e-mail address,

or mobile telephone number, the person is exempt from the

requirements of this section with regard to that worker.

SECTION 2. The following provisions are repealed:

(1) Sections 15.50, 15.51, and 15.52, Business &

Commerce Code;

(2) Section 311.083(i), Health and Safety Code; and

(3) Sections 1002.061(j), 1044.0605(k), and

1069.0605(j), Special District Local Laws Code.

SECTION 3. The changes in law made by this Act apply only to

a covenant not to compete entered into or renewed on or after the

effective date of this Act. A covenant not to compete entered into

or renewed before the effective date of this Act is governed by the

law in effect on the date the covenant was entered into or renewed,

and the former law is continued in effect for that purpose.

SECTION 4. This Act takes effect September 1, 2025.