Running a business in Texas means wearing many hats, and one of the most challenging is managing employment relationships. When you hire your first employee or your fiftieth, the legal responsibilities multiply quickly. I’m Elissa Brewster Langston, a lawyer at Brewster Law Firm in Sugar Land, and I’ve helped many business owners work through these challenges.
Whether you’re dealing with a difficult termination, wondering if you classified your workers correctly, or trying to figure out when you need to pay that final check, employment issues can keep you up at night. They can also put your business at serious risk if you get them wrong. Let me walk you through what you need to know.
What You Need to Know Right Now
- Texas follows at-will employment, which means you can generally terminate employees for any reason or no reason at all, but there are important exceptions that can turn a routine firing into a lawsuit.
- Worker misclassification between employees and independent contractors carries significant penalties, and the Texas Workforce Commission has specific tests they use to determine proper classification.
- The Texas Payday Law requires you to pay employees on specific schedules, and getting final paychecks wrong can result in penalties and having to pay the employee’s attorney fees.
- Non-compete agreements in Texas are enforceable only if they meet specific requirements under the Texas Business and Commerce Code, and recent changes have dramatically limited them for healthcare workers.
- Discrimination protections under the Texas Labor Code mirror federal law but also include some state-specific provisions, and you need to know both sets of rules.
So, What Does “At-Will” Really Mean for You?
Texas is an at-will employment state. This sounds simple on paper, but the reality is more complicated. Yes, you can terminate an employee for almost any reason without facing legal consequences. But that “almost” is doing a lot of work.
At-will employment means the relationship can end at any time, by either party, without advance notice. You don’t need a good reason. You don’t even need a reason at all. But you absolutely cannot fire someone for an illegal reason, and there are more illegal reasons than most business owners realize.
The main exceptions to at-will employment include terminations based on discrimination, retaliation for reporting illegal activity, refusing to commit an illegal act, or filing a workers’ compensation claim.
Under Chapter 21 of the Texas Labor Code, you cannot terminate someone based on race, color, disability, religion, sex, national origin, or age (if they’re 40 or older). These protections apply to businesses with 15 or more employees under Texas law. Note that federal law (the ADEA) requires 20 or more employees for age discrimination claims, but Texas law is more protective and applies to employers with 15 or more employees for all protected categories including age.
You also need to watch out for what courts call “implied contracts.” If your employee handbook says employees can only be fired “for cause,” you may have accidentally created an employment contract that overrides the at-will presumption. I’ve seen business owners learn this lesson the hard way.
Here’s How to Tell if You’ve Classified Your Worker Correctly
This question causes more problems than almost any other employment issue. The temptation to classify workers as independent contractors is strong because you avoid payroll taxes, workers’ compensation insurance, and unemployment insurance obligations. But the Texas Workforce Commission doesn’t care what you call someone. They care about the reality of the working relationship.
The TWC uses a common-law test that looks at whether you have the right to control how the work is performed. If you tell someone when to show up, what tools to use, how to do the job, and they work only for you, they’re probably an employee no matter what your agreement says.
Getting this wrong means you could owe back unemployment taxes, face penalties, and end up paying for benefits the worker should have received all along. The TWC has been increasing enforcement actions, and misclassification can lead to investigations that look at your entire workforce, not just the one worker who complained.
Let’s Talk About When and How You Need to Pay Your Team
The Texas Payday Law, found in Chapter 61 of the Texas Labor Code, sets strict rules about when and how you must pay employees. Most employees must be paid at least twice per month. The exceptions are executive, administrative, and professional employees under the Fair Labor Standards Act, who can be paid monthly.
Here’s where businesses often stumble. When an employee leaves, you have different deadlines depending on whether they quit or were terminated.
If you discharged the employee, you must pay all wages due by the sixth calendar day after termination. If the employee resigned, you must pay by the next regularly scheduled payday.
These aren’t suggestions. Missing these deadlines can result in the employee recovering their unpaid wages plus penalties. Even worse, if the employee has to hire a lawyer to collect their wages, you might have to pay their attorney fees too. I’ve seen business owners lose thousands of dollars because they delayed a final check by a few days.
What about vacation time and other benefits? Under Texas law, you only have to pay for unused vacation, sick leave, or other fringe benefits if you promised to do so in a written policy or agreement. This is why having clear written policies matters. If your handbook says employees get paid for unused vacation, you have to honor that promise.
Texas Non-Compete Agreements That Hold Up
Non-compete agreements are allowed in Texas, but only if they meet the requirements under Section 15.50 of the Texas Business and Commerce Code. The agreement must be tied to an otherwise enforceable contract and must include reasonable limits on time, geographic area, and the type of work restricted. It cannot go further than necessary to protect your legitimate business interests.
If a non-compete is too broad, Texas courts can rewrite it to make it reasonable instead of throwing it out completely. That may sound like a safety net, but it is not something you should depend on. A non-compete needs to be drafted correctly from the beginning if you want it to survive a legal challenge.
Healthcare employers need to take special notice. Starting September 1, 2025, Senate Bill 1318 places strict limits on non-compete agreements for physicians, dentists, nurses, and physician assistants. If you employ anyone in these positions, you should review your contracts now because the rules have changed.
The rule of thumb is simple. Two years is usually reasonable. Five years probably is not. A geographic limit that covers the Houston metro area might be acceptable if that is where your business operates. A restriction that covers the entire state of Texas is much harder to justify. The work restrictions also have to relate to what the employee actually did for you, not every job available in the industry.
Handling Workplace Discrimination Issues in Texas
Chapter 21 of the Texas Labor Code prohibits discrimination based on race, color, disability, religion, sex, national origin, and age. It applies to hiring, firing, pay, and working conditions. The law is similar to federal discrimination rules, and many cases go through both state and federal agencies at the same time.
You also cannot retaliate against someone for reporting discrimination or helping with an investigation. Under Section 21.055, retaliation claims are often easier for employees to prove than the discrimination itself.
Disability discrimination requires employers to provide reasonable accommodations unless doing so creates an undue hardship. You are not required to keep someone who cannot perform the essential functions of the job, but you must discuss possible accommodations in good faith.
What You Need to Know About Sexual Harassment
Sexual harassment is treated as a form of sex discrimination, but the law has special rules. Since September 1, 2021, Texas employers can be sued for sexual harassment even if they have only one employee. This is different from other Chapter 21 protections, which generally apply only to employers with 15 or more employees.
The deadline to file a sexual harassment claim is now 300 days instead of 180. Supervisors and managers can be held personally responsible. Employers must take immediate and appropriate action once they learn of harassment.
You can be liable for harassment by supervisors, coworkers, or customers if you knew or should have known about it and failed to respond. A written anti-harassment policy is no longer optional. It is a basic requirement if you want to protect your business.
When Employees Speak Up, Here’s How to Respond Properly
When an employee complains about discrimination, harassment, or other workplace issues, your response matters enormously. Ignoring the complaint, retaliating against the employee, or conducting a sham investigation can turn a manageable situation into a lawsuit.
You need to investigate promptly and thoroughly. Talk to witnesses, review documents, and document everything. Keep the investigation confidential to the extent possible. Take appropriate corrective action if you find problems. And whatever you do, don’t punish the person who complained.
Sometimes investigations reveal that the complaint has merit. When that happens, you need to address the problem immediately. This might mean disciplining or terminating the harasser, changing policies, or providing additional training. The goal is to stop the problematic behavior and prevent it from happening again.
Other times, investigations show the complaint was unfounded. That’s fine, but you still need to document your investigation and findings carefully. And you still cannot retaliate against the employee who made the complaint, even if it turned out to be baseless.
How to Stay Out of Trouble With Overtime and Pay Laws
Beyond the Payday Law, you need to comply with minimum wage and overtime requirements. Texas follows the federal minimum wage of $7.25 per hour. There’s no separate state minimum wage that’s higher.
The Fair Labor Standards Act requires overtime pay at one and a half times the regular rate for hours worked over 40 in a workweek. Many employers mistakenly believe that paying someone a salary means they don’t have to pay overtime. That’s wrong. The salary test is just one part of determining whether someone is exempt from overtime.
To be exempt from overtime, an employee generally needs to meet both a salary basis test and a duties test. They need to be paid a fixed salary that doesn’t vary based on hours worked, and they need to perform primarily executive, administrative, or professional duties as defined by federal regulations.
Misclassifying employees as exempt when they should receive overtime is one of the most common wage and hour violations I see. If you’re paying someone a salary to avoid overtime, but they’re really just doing hourly work, you could owe back overtime and face penalties.
How a Good Handbook Can Save You From a Lawsuit
You’re not legally required to have an employee handbook in Texas, but not having one is usually a mistake. A well-drafted handbook protects your business by clearly communicating your policies and expectations. It can also preserve your at-will employment relationship if written correctly.
Your handbook should include policies on discrimination and harassment, procedures for reporting complaints, rules about attendance and time off, and your discipline process. It should make clear that employment is at-will and that the handbook doesn’t create a contract.
What you don’t want is a handbook that promises things you’re not required to provide and can’t consistently deliver. If you say employees will only be fired for good cause, you’ve probably created an implied contract. If you promise progressive discipline, you need to follow it. Every policy in your handbook is a commitment you’re making.
Review your handbook regularly and update it when laws change. An outdated handbook that references old laws or policies you no longer follow can be worse than no handbook at all.
What’s the Worst That Could Happen If You Get It Wrong?
Employment law violations can result in several types of consequences. The Texas Workforce Commission can assess penalties for wage violations and misclassification. The Texas Commission on Human Rights and federal Equal Employment Opportunity Commission can investigate discrimination complaints. And employees can file lawsuits seeking damages, back pay, and attorney fees.
The penalties vary depending on the violation. Wage claims under the Payday Law can result in you paying the unpaid wages plus the employee’s attorney fees if they have to sue you. Discrimination claims can result in back pay, front pay, emotional distress damages, and punitive damages in some cases.
Some violations also carry criminal penalties, though these are rare. Willfully failing to pay wages can be a misdemeanor under Texas law. Most employment disputes stay in the civil realm, but the potential consequences are still serious enough to warrant careful attention to compliance.
Want to Stay Out of Trouble? Here’s How to Protect Your Business
The best protection is prevention. Get your employment relationships right from the start. Use proper classification for workers. Pay people on time and correctly. Have clear policies and follow them consistently. Document performance issues before they become termination decisions. When you’re not sure about something, ask for help before you act.
Fixing an employment problem after it happens is always more expensive than preventing it in the first place. I’ve worked with business owners who spent tens of thousands of dollars defending employment claims that could have been avoided with a few hundred dollars of advice upfront.
Train your managers and supervisors on employment law basics. They’re the ones making daily decisions about schedules, discipline, and workplace issues. If they don’t know the rules, they can create liability for your business without realizing it.
Keep good records. Document performance issues, disciplinary actions, and the reasons for employment decisions. If you ever face a claim, your contemporaneous documentation will be your best defense. Trying to recreate the reasons for a firing months or years later never works as well as having written records from when it happened.
The Main Points You Should Keep in Mind
- Getting employment issues right protects both your business and your employees. The at-will employment doctrine gives you flexibility, but it’s not a license to ignore discrimination laws or wage requirements. Proper worker classification saves you from costly audits and penalties down the road. Following the Texas Payday Law keeps you out of wage disputes that can be expensive to resolve.
- Non-compete agreements can protect your legitimate business interests, but only if they’re reasonable and properly drafted. Understanding discrimination protections helps you create a fair workplace and avoid claims. Having clear policies and following them consistently demonstrates that you take your obligations seriously.
- Employment law isn’t just about avoiding lawsuits. It’s about building a sustainable business that treats people fairly and operates within the rules. When you get these basics right, you can focus on growing your business instead of defending employment claims.
Let’s Clear Up a Few Common Employment Law Questions
Can I fire an employee for any reason in Texas?
Generally yes, because Texas is an at-will employment state. However, you cannot terminate someone for discrimination based on protected characteristics, retaliation for reporting illegal activity, or refusing to commit an illegal act. You also cannot fire someone in violation of an employment contract if one exists.
How quickly do I need to pay someone after they leave?
If you terminated the employee, you must pay all wages due by the sixth calendar day after termination. If the employee quit, you must pay by the next regularly scheduled payday. Missing these deadlines can result in penalties and attorney fee awards.
What makes a non-compete agreement enforceable in Texas?
The agreement must be ancillary to another enforceable agreement, contain reasonable limitations on time, geography, and scope of activity, and not impose greater restraints than necessary to protect your legitimate business interests. Texas courts evaluate reasonableness in all three areas.
Do I have to pay for unused vacation when an employee leaves?
Only if you promised to do so in a written policy or agreement. The Texas Payday Law does not automatically require payment for unused vacation, sick leave, or other fringe benefits unless you committed to provide them in writing.
How do I know if someone should be classified as an employee or independent contractor?
The Texas Workforce Commission uses a test that focuses on whether you have the right to control how the work is performed. If you control when, where, and how someone works, they’re probably an employee regardless of what your agreement calls them.
What should I do if an employee complains about discrimination or harassment?
Investigate promptly and thoroughly. Interview witnesses, review relevant documents, and document your investigation. Take appropriate corrective action if you find problems. Never retaliate against someone for making a complaint, even if it turns out to be unfounded.
One Call Can Save You a Lot of Stress Later
Employment issues don’t wait for convenient times to arise. They happen when you’re focused on running your business, and they demand immediate attention. Whether you’re facing a specific problem or want to make sure your policies and practices are solid before issues develop, I can help.
At Brewster Law Firm, I work with businesses throughout Sugar Land and the surrounding areas to handle employment matters proactively and solve problems when they arise. Every business is different, and cookie-cutter solutions rarely work. Let’s talk about your specific situation and develop an approach that makes sense for your business.
Don’t wait until a small issue becomes a big problem. Reach out today for a free consultation, and let’s make sure your business is protected.