Texas Enacts Sweeping Changes to Physician Non-Compete Agreements

Texas Governor Greg Abbott has signed Senate Bill 1318 (SB 1318), imposing strict limitations on employers' covenants not to compete with physicians and extending similar restrictions to agreements with dentists, nurses, and physician assistants. The new law takes effect on September 1, 2025, and applies to non-compete agreements entered or renewed on or after its effective date.

Key Takeaways:

• The new law introduces a five-mile geographic limit and a one-year duration cap for non-compete agreements with physicians, dentists, nurses, and physician assistants.
• Non-compete buyouts for physicians are capped at the physician's total annual salary and wages at termination.
• The Texas Business and Commerce Code is amended to clarify 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.
• Employers must clearly and conspicuously state the terms and conditions of the agreement in writing, including the five-mile geographic limit, one-year duration, and buyout cap.
• Termination without "good cause" makes the non-compete agreement void and unenforceable.
• Healthcare employers should proactively update their agreements to comply with the new requirements and minimize litigation risks.
• The new law aligns with a growing trend across states to limit non-compete agreements in healthcare to balance employers' business interests, practitioners' mobility, and patients' access to care.

Statistics:

• September 1, 2025: Effective date of the new law.
• 5 miles: Geographic limit for non-compete agreements.
• 1 year: Duration cap for non-compete agreements.
• 100%: Cap on non-compete buyouts for physicians at their total annual salary and wages at termination.

Sources:

• Senate Bill 1318 (SB 1318)
• Texas Governor Greg Abbott
• Texas Medical Board
• William L. Davis Jackson Lewis P.C.