Texas has taken another significant step in limiting non-compete agreements within the healthcare sector. On June 20, 2025, Gov. Greg Abbott signed Senate Bill 1318 (“SB 1318”), which amends and adds new sections to the state’s Covenants Not to Compete Act, Tex. Bus. & Com. Code § 15.50 et seq. (the “Act”). The revisions imposed by SB 1318, which will take effect on Sept. 1, 2025, establish additional restrictions for physician non-compete covenants and apply many of these restrictions — and the restrictions previously only applicable to physicians — to nurses, physician assistants and dentists (collectively, with physicians, “HCPs”). The amendments reflect a shift in the state’s approach to balancing employer protections with workforce mobility and patient access to care.
SB 1318 reflects growing national momentum among policymakers and advocacy groups to curtail restrictive employment covenants in healthcare. SB 1318 follows the Federal Trade Commission’s failed attempt to implement a nationwide ban on many non-competes, prompting states like Texas to reevaluate their own laws. Advocacy groups, including the Texas Medical Association and other practitioner-focused organizations, successfully pushed for the legislation, despite opposition from the Texas Hospital Administration and other employer groups.
Texas has long required non-competes to contain “reasonable” limitations on duration, geographic reach, and scope of activity and to impose no greater “restraint than is necessary to protect the goodwill or other business interest” of the other party. (See Tex. Bus. & Com. Code § 15.50(a).) Texas courts have historically reviewed non-competes through a fact-specific lens and reformed overly broad non-competes by revising them as the court deems reasonable — contributing to unpredictability. Non-competes specifically relating to the practice of medicine are subject to more stringent requirements under Section 15.50(b) of the Act, including a mandatory buyout provision, among others (the “Additional Non-Compete Requirements”). In addition, the Act has been interpreted by Texas courts as applying to non-solicitation covenants. As SB 1318 continues to use the term “covenant not to compete” without clarifying whether it is intended to include non-solicitation covenants, we anticipate litigation around whether the new requirements imposed under SB 1318 also apply to non-solicitation covenants.
Key Changes Under SB 1318
SB 1318 expands and clarifies the statutory requirements governing non-compete agreements relating to the practice of medicine, nursing, dentistry and practice as a physician assistant. The new requirements applicable to non-competes relating to the practice of nursing, dentistry and practice as a physician assistant under new Section 15.501 of the Act are mandatory (i.e., non-competes are not enforceable unless they comply with the new requirements).
The amendments impose the following key changes with respect to non-competes with HCPs relating to the practice of their professions entered into or renewed on or after Sept. 1, 2025:
- Broader practitioner applicability. Prior to the changes imposed by SB 1318, the Additional Non-Compete Requirements only applied to physicians. On and after Sept. 1, 2025, additional restrictions will apply to a broader category of “health care practitioners,” including licensed physicians, dentists, professional or vocational nurses, and physician assistants.
- A one-year maximum tail. Under SB 1318, non-compete restrictions cannot extend for longer than one year after the HCP’s employment or contractual relationship ends. This limitation supplants the case-by-case, reasonableness standard applicable to the duration of other non-competes under the Act.
- A maximum five-mile geographic scope. Under SB 1318, non-compete restrictions must be geographically limited to a five-mile radius from the location where the HCP primarily practiced prior to termination. Under the prior standard, Texas courts’ interpretations of geographic reasonableness varied widely, depending on (a) whether the practitioner served rural or urban populations, (b) whether multiple practice locations were involved, (c) the percent of time a practitioner spent at each practice location and (d) the distribution of the patient base.
- A mandatory buyout option. The mandatory non-compete buyout requirement — once limited to physicians — now applies to all HCPs. Under SB 1318, the buyout price for the non-compete must not exceed one year of the HCP’s annual salary and wages as of termination. The Act previously required the buyout amount to be a reasonable price or, at the option of either party, determined by a mutually agreed upon arbitrator (or arbitrator of the court). As a result, disputes regarding the buyout were typically addressed in arbitration. Unless the parties include a general arbitration clause in their agreement, we anticipate that, as a result of SB 1318, buyout disputes may result in litigation.
- Clear and conspicuous disclosure in writing. Under SB 1318, non-compete terms for HCPs must be clearly and conspicuously stated in writing. This requirement aims to enhance transparency and ensure that HCPs understand the scope and limitations of their post-termination obligations.
In addition to the foregoing changes applicable to HCPs, the amendments impose the following key changes only with respect to physician non-competes relating to the practice of medicine:
- Void if involuntarily terminated without “good cause.” Under SB 1318, physician non-competes are unenforceable and void if the employment or other contractual relationship is involuntarily terminated “without good cause.” SB 1318 defines “good cause” as “a reasonable basis for discharge of a physician from contract or employment that is directly related to the physician’s conduct, including the physician’s conduct on the job or otherwise, job performance, and contract or employment record.”
- The Additional Non-Compete Requirements and new requirements do not apply to administrative activities. SB 1318 distinguishes between engaging in the practice of medicine on the one hand and “managing or directing medical services in an administrative capacity for a medical practice or other health care provider” on the other. The Additional Non-Compete Requirements and new requirements adopted by SB 1318 that are applicable to physicians do not apply to non-competes relating to managing or directing medical services in an administrative capacity, such as non-competes contained in a medical director agreement relating to medical director services. Instead, such non-competes are subject to the existing reasonability standards for duration, geographic reach, and scope of activity and the no-greater-restraint-than-necessary limitations under Tex. Bus. & Com. Code § 15.50(a).
- Patient-access provisions remain unchanged. SB 1318 retains the existing provisions of the Act requiring non-compete agreements with physicians to allow the physician to (a) receive a list of patients whom the physician saw or treated in the year before termination; (b) access medical records and receive copies for a fee, if authorized by the patient; and (c) provide continuing care and treatment to his or her patients during the course of an acute illness even after termination.
Takeaways for Employers and Healthcare Practitioners in Texas
- Consider the scope of applicability. Not every non-compete will need to be amended to account for SB 1318. The revised statute applies specifically to non-compete agreements that restrict the practice of medicine, nursing, dentistry and practice as a physician assistant. Non-competes relating solely to business operations, administrative services, ownership interests or transactions — such as those found in purchase agreements — are likely unaffected by the amendments.
- Update or renew contracts as needed. The new requirements apply only to non-compete agreements entered into or renewed on or after Sept. 1, 2025. Accordingly, agreements entered into prior to Sept. 1, 2025, will remain subject to the limitations of the Act that were in effect prior to SB 1318, but only until such agreements are renewed thereafter. However, employers with contracts that renew annually (or with a different frequency) should (a) consider updating their agreements to have an extended fixed term before Sept. 1, 2025, to ensure that older terms are grandfathered in or (b) proactively revise such contracts before Sept. 1, 2025, to align the non-compete provisions with the new law and avoid compliance issues in the future.
- Consider ensuring contract uniformity. Although Texas courts are not bound to apply the amended law to grandfathered non-competes, judges may look to the new statutory framework for guidance when evaluating the reasonableness of existing non-competes—particularly as it relates to geographic scope, duration and buyout terms. Given the historical breadth of judicial discretion in reforming non-compete provisions under Texas law, the long-term influence of these amendments on existing agreements remains to be seen.
- Buyout cap considerations. SB 1318 caps the maximum buyout amount for a non-compete restriction to no more than the HCP’s total annual salary and wages as of the termination date. However, the law does not expressly address how the cap should be calculated for HCPs who have been employed for less than a year or those with collections-based or productivity-based compensation models. Employers and practices should consult with legal counsel to address these scenarios and closely monitor case law and regulatory guidance to ensure continued compliance.
- Update form agreements. Employers should review and revise employment and independent contractor agreements for physicians, dentists, nurses and physician assistants to ensure alignment with the amended law for all agreements that will be executed or renewed on or after Sept. 1, 2025.
- Decide whether to split non-competes. The non-compete restrictions in SB 1318 relate specifically to the practice of medicine, the practice of dentistry, the practice of nursing and practice as a physician assistant. In conjunction with counsel, employers should consider whether to bifurcate non-competes that cover these areas and other activities to reduce the risk that the entire non-compete could be held unenforceable by a court under SB 1318. Such bifurcation could apply the SB 1318 restrictions, such as the one-year tail and five-mile radius, only to the clinical practice non-compete, while maintaining separate non-competes for administrative services, equity ownership and other non-clinical activities.
- Review policies to confirm alignment. Internal HR and compliance policies should be reviewed and updated as necessary to reflect the new statutory requirements and ensure consistent application across the organization.
SB 1318 imposes significant changes to non-compete use in Texas, and employers and healthcare providers are encouraged to consult with experienced healthcare counsel to assess the impact of SB 1318, determine appropriate contractual adjustments, and develop a comprehensive compliance strategy tailored to their specific workforce and organizational structure.
Special thanks to summer associates Katherine Janda and Zachary Abbas for their significant contributions to this legal alert. They are not licensed to practice law.