Highlights
- Following Texas Gov. Greg Abbott's signing of Senate Bill 1318 into law, physician and healthcare practitioners' non-compete agreements in that state will be limited to a geographic scope of 5 miles from the physician's primary practice location.
- Non-compete "buyouts" are capped at one year's salary or wages for the physician or healthcare practitioner and, if a physician's employment or contract is terminated without a "good reason," the non-competition restrictions are void and unenforceable.
- Similar restrictions are enacted for the first time for dentists, nurses and physician assistants.
Texas Gov. Greg Abbott on June 20, 2025, signed into law Senate Bill (SB) 1318, which creates greater restrictions on physician non-compete agreements in Texas and, for the first time, extends such restrictions to non-compete agreements affecting other healthcare practitioners, including dentists, nurses and physician assistants. The law will go into effect on Sept. 1, 2025, and affects healthcare practitioner non-compete provisions related to providing healthcare entered into after that date. By setting limitations on the enforceability of healthcare practitioner non-compete agreements, the law aims to ensure greater access to care for patients and mobility for providers.
Changes to Requirements for Physician Non-Competes
SB 1318 amends Texas Business and Commerce Code Section 15.50(b), outlining the limits for non-compete provisions related to the practice of medicine for Texas physicians. The law defines what can be considered reasonable for such provisions, including limitations on the buyout amount, geographic scope and temporal scope. If a physician's employment or contract is terminated without good cause, as defined by the statute, the non-compete provision will be unenforceable.
Consistent with previous iterations of Section 15.50(b), a non-compete related to the practice of medicine must include a reasonable buyout provision. A buyout provision is the price that the person restricted by the non-competition provision can pay to be released from their obligation under the non-competition provision. SB 1318 caps a buyout provision to not exceed the physician's total annual salary and wages at the time of termination. This replaces the nebulous "reasonable price" standard and eliminates the required option to arbitrate the buyout amount in the event of a dispute. Although the revised statutory language creates a clear ceiling for the buyout, it could create ambiguity in situations where a physician is not paid on a salary or wage basis and is instead paid based on collections for billed services, which would necessarily fluctuate over time. One interpretation is that the buyout cap would be based on the physician's most recent annualized compensation or average annual compensation over a period of time.
The law also limits physician non-competes to one year after the termination of the employment or engagement of the physician. Similarly, the geographic scope of the non-compete is limited to a 5-mile radius from the physician's primary practice location at the time of termination. This change creates a question of what happens when a physician practices from multiple locations or practices remotely. Additionally, this 5-mile limitation applies irrespective of the physician's specialty. Some case law has previously supported a larger radius for certain specialties and subspecialties, particularly in rural areas, because patients are more likely to travel farther distances for specialists, but this distinction is no longer a possibility.
The law also makes clear that the "practice of medicine" does not include managing or directing medical services in an administrative capacity for a medical practice or other healthcare practitioner. This means that if a non-compete affects the ability of a physician to serve in an administrative capacity and does not restrict the physician from practicing medicine, the provision can be broader than set out in in Section 15.50(b).
Even if a physician enters into an enforceable non-compete provision related to the practice of medicine, the provision will be void and unenforceable if the physician is discharged from their contract or employment without good cause. The statute defines "good cause" as a reasonable basis for discharge "directly related to the physician's conduct" including "job performance, and contract or employment record." Thus, a practical effect of the amended non-compete restrictions may influence an employer's decision to terminate for good cause or not when circumstances permit termination for good cause.
New Protections for Dentists, Nurses and Physician Assistants
SB 1318 introduces similar non-compete restrictions that have traditionally applied only to physicians related to the practice of medicine and now apply to other healthcare practitioners, including for dentists, nurses (APRNs, RNs and LVNs) and physician assistants.
The new restrictions for non-compete provisions apply only to restrictions related to the healthcare practitioners' healthcare practice (practice of dentistry or nursing or the practice as a physician's assistant). Non-competition provisions related to business activities independent of the provision of healthcare are not affected by the statute.
Similar to the changes to physician non-compete agreements, the law adds new Section 15.501 of the Texas Business and Commerce Code, which creates a buyout provision requirement that is limited to the total annual salary and wages at the time of the termination of the practitioner's contract or employment. The length of the non-competition restriction is limited to one year after the date the contract or employment or engagement with the healthcare practitioner is terminated. The geographic scope of the restriction is limited to a 5-mile radius from the location where the healthcare practitioner primarily practiced before the contract or employment relationship was terminated.
Any non-compete provision involving the healthcare-related practice of a covered healthcare practitioner is required to have its terms and conditions clearly and conspicuously stated in writing.
Of note, unlike the non-compete restrictions for physicians already in place, there is no requirement that the other covered healthcare practitioners be able to provide continuing care to former patients suffering from acute illness, be provided a list of patients seen within the prior year to the end of the contract or employment relationship, or that they be provided access to medical records for patients who provide an authorization.
Applicability of the Law
The changes affecting non-compete and non-solicitation provisions for Texas physicians and healthcare practitioners will apply only to agreements entered into or renewed after Sept. 1, 2025. Because the Texas Covenants Not to Compete Law covers non-solicitation provisions, these changes will also affect non-solicitation provisions regarding patients, vendors and referral sources. Existing agreements will remain governed by prior law. Healthcare practitioners should carefully review their employment agreements and seek legal counsel to advise as to whether an evergreen provision operates as a renewal or continuation of the same agreement. If the evergreen operates as a renewal, the non-compete provision should be amended before its next term.
The additional restrictions on physician non-competes and new restrictions on certain other healthcare practitioners will make it significantly easier for physicians and providers to change practices but continue to practice in the same city or region. This is a big change for employers and could impact the value of employment in some specialties. Of note, with these provisions applying only to the practice of medicine and other healthcare practitioners' practices, these changes do not apply to an ownership interest in a practice.
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