When a business changes hands in Texas, the purchase price typically reflects more than just equipment, inventory, or a customer list. A significant portion of the value in most deals is goodwill: the reputation the seller built, the relationships they nurtured, and the loyal customers they brought through the door year after year. For a buyer in the Houston area, that goodwill is only worth something if the seller agrees to step back. That is why non-compete agreements are a standard feature of business sale transactions throughout Harris, Fort Bend, Montgomery, and Brazoria counties.

This blog breaks down how these agreements work in Texas, why they are treated differently from employment non-competes, and what both sides of a deal need to understand before signing.

Why Business Sale Non-Competes Are Different

Texas courts are generally strict when it comes to non-compete agreements in the employment context. An employer who wants to restrict a departing employee faces a high burden: the agreement must be tied to real consideration, like actual access to trade secrets, and must be reasonable in time, geography, and scope of activity.

The rules are more permissive when the non-compete arises from the sale of a business. Texas courts have long recognized that when a seller transfers the goodwill of a business to a buyer, the buyer needs protection to actually enjoy what they paid for. If the seller could walk out the door and immediately open a competing business down the street and call all the same customers, the buyer would not truly own the goodwill they purchased. Courts in Texas and across the country treat this situation differently from a standard employment restraint, and the result is that sale-of-business non-competes can be broader in scope and longer in duration while still being enforceable.

A federal district court case involving a specialty printing company in Texas illustrates the point well. In that case, a court upheld a five-year non-compete against a seller, noting that Texas law supports longer restrictions when the buyer is protecting purchased goodwill, as long as the geographic scope and activity restrictions remain tied to the actual business that was sold.

The Legal Foundation: Texas Covenants Not to Compete Act

Non-compete agreements in Texas are governed by the Texas Covenants Not to Compete Act, found in Section 15.50 of the Texas Business and Commerce Code. Under this law, a non-compete is only enforceable if two conditions are met:

First, the agreement must be ancillary to or part of an otherwise enforceable agreement. In the sale-of-business context, this requirement is typically satisfied by the purchase agreement itself. When a buyer is paying for the goodwill of a business, courts recognize that the non-compete is necessary to make the goodwill transfer meaningful. It is not a standalone promise floating in isolation. It is part of the broader deal.

Second, the restrictions in the agreement must be reasonable. Under Texas law, reasonableness is measured by three factors: time period, geographic area, and scope of restricted activity. The restrictions must be no greater than necessary to protect the buyer’s legitimate interest in the goodwill they purchased.

What Is Reasonable in a Business Sale Context?

For business sales, Texas courts have been willing to enforce non-competes of three to five years in duration, and sometimes longer if the deal involves significant consideration, an earnout period, or the seller remaining in a consulting role after closing.

Geographic scope should reflect the actual footprint of the business. A neighborhood restaurant in Sugar Land would face a much tighter geographic restriction than a regional contractor operating throughout the greater Houston area. Courts look at where the business actually operated and served customers, not where it theoretically might have expanded.

The activity restriction should be tied directly to the line of business that was sold. Prohibiting the seller from engaging in any business activity in the entire state of Texas would almost certainly be overbroad. Prohibiting the seller from operating a competing business within the same trade area for the same type of customers the buyer just paid to acquire is far more likely to hold up.

One important point for buyers: the purchase agreement itself should clearly state that the purchased assets include the goodwill of the business. Texas courts have rejected non-compete claims in cases where a buyer purchased tangible assets but the transaction documents did not reflect that goodwill was also being transferred. That one oversight can make the difference between an enforceable restriction and a worthless piece of paper.

Issues That Come Up in Houston Area Deals

Business sales in Harris, Fort Bend, Montgomery, and Brazoria counties involve a wide range of industries, including construction, healthcare, retail, professional services, oil and gas services, and food service. The enforceability analysis does not change based on industry, but the practical application does.

In service-based businesses where the seller’s personal relationships are the core asset, courts look closely at whether the geographic restriction captures the area where those relationships were concentrated. In businesses with regional or statewide reach, broader restrictions may be appropriate, but they need support in the deal documents.

Another issue that surfaces in Houston area transactions is what happens when the seller continues working in the business after closing, often in a transition role or under an employment agreement. If the seller also signs an employment-based non-compete alongside the sale-related one, those two agreements need to be consistent and clearly drafted. Inconsistencies between them create ambiguity that courts can use to limit enforcement.

The FTC Rule and What It Means Today

In 2024, the Federal Trade Commission attempted to issue a nationwide rule that would have banned most non-compete agreements. A federal court in the Northern District of Texas struck down that rule before it took effect, and the FTC formally abandoned its appeal in September 2025. Non-compete agreements remain legal at the federal level.

Importantly, the FTC rule that was struck down specifically included an exception for non-competes tied to business sales. Even if the rule had survived, a seller’s promise not to compete with a buyer would have remained enforceable. This distinction reflects the longstanding legal consensus that sale-of-business non-competes serve a fundamentally different purpose than employment restrictions.

Practical Guidance for Buyers and Sellers in the Houston Area

If you are buying a business in the Houston metropolitan area, do not treat the non-compete clause as boilerplate. Make sure the purchase agreement expressly states that the sale includes the goodwill of the business. Make sure the non-compete covers the right geography for where that business actually operates. If the seller has key employees who also have customer relationships, consider whether separate non-solicitation agreements with those employees are appropriate.

If you are selling a business, the non-compete you sign is a real constraint on your professional life after closing. Review the time period carefully. Consider whether the geographic restriction matches the actual scope of the business you operated. If you plan to stay involved in the industry in some capacity, negotiate carefully about what activities are prohibited and which are allowed.

Both buyers and sellers benefit from having experienced business counsel review the non-compete before the deal closes. A poorly drafted restriction is a problem for both parties. The buyer may find it unenforceable at the worst possible moment, and the seller may find themselves bound by language broader than what they intended to agree to.

Related Reading

Non-Compete Agreements: Enforceability and Disputes

Are Non-Compete Agreements Enforceable in Your State?

Reasonable Restrictions in Non-Compete Clauses

How to Challenge an Overly Broad Non-Compete

Understanding Non-Solicitation Agreements

If you are involved in a business sale transaction in the Houston area and have questions about non-compete agreements, contact our office to schedule a consultation. We represent buyers and sellers throughout Harris, Fort Bend, Montgomery, and Brazoria counties.