Texas Overhauls State Restrictions on NonCompetes in Healthcare

Texas Overhauls State Restrictions on NonCompetes in Healthcare Austin, TX – On June 20, 2025, Governor Abbott signed Senate Bill 1318, marking a major shift in how Texas regulates noncompete agreements for healthcare providers. The law takes effect September 1, 2025, applying to any covenant entered into or renewed on or after that date. Expanding Protections Beyond Physicians Previously, Texas law limited noncompete restrictions primarily to physicians under Section 15.50 of the Business & Commerce Code. SB 1318 extends similar constraints to dentists, nurses (including RNs, APRNs, LPNs), and physician assistants, bringing these professions under newly promulgated Section 15.501.  Administrative roles, such as medical directors, remain outside the law’s ambit. New Limitations: Geography, Duration, Buyout For all covered healthcare practitioners:

Geographic Scope: Noncompetes may not extend further than a 5mile radius from the practitioner’s primary practice site.
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Duration: Non-compete restrictions are capped at one year after the date of termination.

Buyout Cap: Any option for the practitioner to buy out the noncompete must not exceed the practitioner’s annual salary and wages at termination (superseding the previous “reasonable price” standard and arbitration option).

Clarity Requirement: All terms must be “clearly and conspicuously” stated in writing. Additional Safeguards for Physicians Physicians receive further protections under SB 1318: If a physician is involuntarily terminated without “good cause”, the noncompete is rendered void and unenforceable. “Good cause” is defined as a reasonable basis for termination tied to job performance, conduct, or employment record. Physicians also maintain statutory rights to: Continue treating patients with acute illness through termination, Obtain a list of patients they treated in the prior year, and Access medical records, with patient consent. These additional protections do not apply to dentists, nurses, or PAs under SB 1318. Why the Law Matters SB 1318 is part of a broader national trend enhancing healthcare provider mobility and reinforcing patient access to care. By imposing clear, uniform, and limited restrictions, Texas aims to: Prevent overbroad covenants from unduly restricting practitioner movement and patient access,
Reduce litigation over ambiguous terms by mandating clarity,
Offer a transparent ceiling on buyout obligations, and

Encourage employers to document performancebased “for-cause” terminations to preserve enforceability. Prepare for Compliance By September 1 Before September 1, 2025, healthcare employers are strongly encouraged to: Audit all existing and template agreements with physicians, dentists, nurses, or PAs to ensure restrictive covenants comply with SB 1318. Agreements with evergreen renewal causes that trigger on or after September 1, 2025, will be required to comply with this Texas law.

Revise terms to comply with the requirements for a geographic scope of five miles, non-compete duration of one year, a buyout option no higher than annual salary, and clear written language.

Distinguish between clinical and administrative roles in contracts.

Document any termination, especially to support “good cause” terminations of physicians. Failure to act before September 1, 2025 could lead to noncompliance and render restrictive covenants unenforceable Healthcare practitioners should: Review current contracts, noting if renewal or modification is on or after September 1, 2025. If so, new protections apply.

Consider mobility opportunities, since after that date, noncompetes will be more limited.

Factor lower buyout terms into decisionmaking and negotiations. Bottom Line Texas SB 1318 enacts sweeping reforms to healthcare noncompete agreements. By curbing duration, geography, and buyout provisions—and expanding applicability to nonphysician providers—it seeks to protect both practitioners and patients while still allowing employers to safeguard legitimate business interests. With the Effective Date of September 1 looming, both employers and providers in Texas should promptly reassess contracts and policies. The full text of Texas Senate Bill 1318 can be found here.