| |
| |
|
|
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. |