On June 20, 2025, Texas enacted SB 1318, modifying the criteria for enforceable healthcare practitioner non-competes in the Texas Business and Commerce Code. The modifications (1) limit the scope of enforceable physician non-competes; and (2) expand non-compete protections to healthcare practitioners in addition to physicians. Notably, the changes set forth in SB 1318 take effect September 1, 2025, and will apply only to a covenant not to compete entered into or renewed on or after this effective date. Further, SB 1318 did not amend or alter that the restrictions on a physician non-compete do not apply to a physician’s business ownership interest in a licensed hospital or licensed ambulatory surgical center.

SB 1318 highlights the Legislature’s desire for clear and practical non-compete language in physician employment agreements and attempts to balance “patient access to care, legal ambiguity and burdens of litigation, protections for the integrity and mobility of the healthcare workforce, and competition by providing for buyout restrictions.”

Physician Non-Competes

Prior to SB 1318, Texas Business and Commerce Code Section 15.50 set forth the following components of an enforceable non-compete, which include:

• Protections for a physician’s access to a list of his patients (current or that the physician had treated within the past year of termination of his employment);
• Access to medical records of physician’s patients upon patient authorization and payment of a reasonable fee;
• The proper formatting of the medical records for the physician’s actual use;
• A “reasonable” buyout fee, as may be determined by an arbitrator in certain circumstances; and
• A covenant that the physician may provide continuing care and treatment to a specific patient or patients in the course of acute illness, even after the contract has been terminated.

SB 1318 modifies the buyout provisions and sets forth new parameters for physician non-competes in Texas:

1. Mandatory Buyout. SB 1318 requires that the covenant provide a buyout “in an amount that is not greater than the physician’s total annual salary and wages at the time of termination of the contract or employment.” SB 1318 removes the “reasonableness” standard and the option that the buyout amount be determined by an arbitrator. In its place, SB 1318 sets forth a cap on the non-compete, but still leaves room for physicians and employers to negotiate the value of the non-compete buyout.
2. Length of Non-Compete Time Period. SB 1318 adds the requirement that the non-compete may only be enforceable up to the one-year anniversary of the date the contract or employment was terminated.
3. Geographical Limitations. SB 1318 limits the geographic area subject to the non-compete to no more than a five-mile radius from the location at which the physician primarily practiced before the contract or employment was terminated.
4. Writing Requirement. The non-compete must have terms and conditions clearly and conspicuously stated in writing.

In addition, SB 1318 explicitly sets forth one situation where a non-compete is void and unenforceable. Specifically, a covenant not to compete relating to the practice of medicine is “void and unenforceable” against a Texas-licensed physician if the physician is “involuntarily discharged from contract or employment without good cause.” “Good cause” means 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.

Notably, “the practice of medicine” does not include managing or directing medical services in an administrative capacity for a medical practice or healthcare provider. Medical service administrators are carved out of these “good cause” protections.

Healthcare Practitioner Non-Competes

SB 1318 adds Section 15.501 to the Texas Business and Commerce Code. Section 15.501 applies to “healthcare practitioners” in addition to physicians, including persons licensed as dentists, vocational nurses, and physicians’ assistants. Section 15.501 sets forth the same boundaries as physician non-competes: a mandatory buyout, a buyout cap, a maximum non-compete time period, geographical limitations, and a writing requirement.

Preparing for the Future

Current healthcare practitioner employers should review the terms of any non-competes for clarity and consistency, even if an agreement pre-dates September 1, 2025, as renewed agreements will be subject to the new non-compete regulations. SB 1318’s modifications address common components of non-competes, and thus, the legislation is assured to impact existing physician agreements that include covenants not to compete.