Texas Enacts Significant New Restrictions on Non-Compete Agreements for Physicians and Health Care Practitioners
Effective September 1, 2025, Texas Senate Bill 1318 (SB 1318) will substantially alter the landscape for non-compete agreements involving physicians and other health care practitioners. This new law amends the Texas Business & Commerce Code to impose strict requirements on the enforceability of restrictive covenants in the health care sector. Employers, practice groups, and health care organizations should review and update their employment and contractor agreements to ensure compliance with these sweeping changes.
Key Provisions of SB 1318
1. Scope of Application
New and Renewed Contracts. SB 1318 applies to non-compete agreements entered into or renewed on or after September 1, 2025. This will likely mean that old provisions in contracts that auto-renew will become non-compliant when they renew.
More Health Care Providers. The law covers not only physicians licensed by the Texas Medical Board, but also extends similar restrictions to dentists, professional and vocational nurses, and physician assistants. This marks a significant expansion from prior law, which focused primarily on physicians. Interestingly, it does not apply to other providers like podiatrists, chiropractors, or mental health providers.
2. Duration and Geographic Limitations
One-Year Maximum Duration: Any non-compete agreement with a covered health care practitioner may not restrict practice for more than one year following the termination of employment or contractual relationship.
Five-Mile Geographic Restriction: The restricted area may not exceed a five-mile radius from the location where the practitioner “primarily practiced” prior to termination. For practitioners working at multiple sites, it is critical to clearly define the “primary practice location” in the agreement to avoid ambiguity and potential disputes.
3. Buyout Requirement and Cap
Mandatory Buyout Provision: All covered non-compete agreements must include a buyout clause, allowing the practitioner to be released from the restriction by paying a specified amount.
Buyout Cap: The buyout amount cannot exceed the practitioner’s total annual salary and wages as of the date of separation. This replaces the prior “reasonable price” standard and eliminates the option for arbitration to determine the buyout amount. Employers must ensure that the buyout figure is clearly stated and does not surpass this statutory cap.
4. Written Clearly and Conspicuously
The law requires that all terms and conditions of the non-compete be set forth “clearly and conspicuously” in writing. Vague or ambiguous language may render the agreement unenforceable.
5. Good Cause Required for Enforcement
If a physician is involuntarily discharged without “good cause,” any non-compete restriction is void and unenforceable. “Good cause” is defined as a reasonable basis for discharge directly related to the physician’s conduct, job performance, or employment record. Employers should maintain thorough documentation of performance and disciplinary issues to support any assertion of good cause.
6. Additional Patient Access Protections
The law preserves existing requirements that non-compete agreements must not deny physicians access to patient lists or medical records and must allow for the continuation of care for patients with acute illnesses.
7. Preemption of Other Laws
SB 1318 expressly preempts any conflicting common law or statutory provisions regarding the enforceability of non-compete agreements for covered practitioners.
Practical Implications and Recommended Actions
1. Immediate Review
We recommend clients immediately audit their current agreements, particularly focusing on contracts that auto-renew after September 1st. Agreements entered into or renewed on or after September 1, 2025, must comply with the new requirements. Non-compliant provisions will not be enforceable.
2. Define Primary Practice Location
For practitioners who work at multiple sites or remotely, it is essential to specify the “primary practice location” in the agreement to ensure the enforceability of the five-mile restriction.
3. Update Termination Protocols
Employers should establish clear protocols for documenting the reasons for any involuntary termination, particularly to demonstrate “good cause” if enforcement of a non-compete is anticipated.
4. Communicate Changes to Stakeholders
Inform current and prospective employees, as well as human resources and legal teams, about these changes to ensure consistent application and understanding across the organization.
5. Monitor Existing Agreements
While SB 1318 applies prospectively, courts may look to the new statutory standards when evaluating the reasonableness of pre-existing agreements. Employers should give careful consideration before enforcing older agreements with broader than necessary restrictions.
Consequences for Employers and Practitioners
For employers, failure to comply with SB 1318 may result in non-compete agreements being declared void and unenforceable. This means that an employer may lose the ability to restrict former employees from competing within the defined time and geographic scope, potentially impacting patient retention, business goodwill, and competitive advantage. Additionally, attempting to enforce a non-compliant agreement could expose the employer to legal challenges, increased litigation costs, and reputational harm within the health care community. Employers may also face difficulties in recruiting and retaining talent if their agreements are perceived as overly restrictive or not in line with current law.
For health care practitioners, non-compliance with the new statutory requirements may create uncertainty regarding their post-employment rights and obligations. Employers may now be motivated to allege wrongdoing by the provider to support a determination of “good cause”. Providers subject to overly broad or non-compliant provisions may feel compelled to limit their professional opportunities unnecessarily or may become involved in costly legal disputes to challenge unenforceable provisions.
Given these significant consequences, we recommend that all health care employers and practice groups act now to review and update their agreements and internal procedures. Ensuring compliance with SB 1318 will help protect your organization’s interests, minimize legal risk, and foster a fair and competitive environment for health care professionals.
Conclusion
SB 1318 represents a significant shift in Texas law, reflecting a broader national trend toward limiting restrictive covenants. Non-compliance can have immediate consequences for both employers and health care providers.