Beginning September 1, 2025, Texas will significantly narrow the permissible scope of non-compete agreements with certain healthcare employees. The legislation, Senate Bill 1318 (“SB 1318” codified in Tex. Bus. Com. Code § 15.50), represents the biggest legislative adjustment to restrictive covenants in the Lone Star State in decades.

SB 1318 amends the Texas Covenants Not to Compete Act (the “Act”) as applied to physicians, dentists, nurses, and physician assistants (“Covered Healthcare Workers”). Specifically, SB 1318 expands the type of healthcare worker to whom the law applies, and it places new and significant limitations on the allowable duration and geographic scope of non-competes with Covered Healthcare Workers. In addition, SB 1318 caps non-compete buyout amounts and prohibits enforcement of non-competes where a physician is terminated without “good cause.”

Below is a detailed summary of how SB 1318 modifies the Act, along with practical steps healthcare employers should take to comply with the amended law.

Preexisting Texas Law

Before SB 1318, the Act permitted employers to enforce non-competes against physicians with certain caveats. One, a physician non-compete must have been “reasonable” in duration, geographic area, and scope of activity. What was “reasonable” could vary greatly on a case-by-case basis—and left much open to judicial interpretation. Two, physician non-competes were required to include a buyout provision permitting a physician to purchase her/himself out of the restriction. But again, the old law was light on details. For example, there was no statutory limit on the amount of the requisite buyout. Rather, the buyout number in the underlying agreement simply had to be “reasonable.” The prior version of the Act also prohibited physician non-competes from blocking a doctor’s access to patient lists or medical records under certain circumstances, or restricting patient care for acute illnesses.

SB 1318’s Key Changes

SB 1318 simultaneously expands and narrows the permissible terms and conditions of Texas non-competes with Covered Healthcare Workers. As noted above, one threshold change is the category of healthcare workers the law applies to. Specifically, SB 1318 applies to physicians, dentists, nurses, and physician’s assistants. Thus, doctors are not the only healthcare workers covered by the statute.

As of September 1, 2025, non-compete agreements with any Covered Healthcare Worker must comply with each of the following requirements:

1. Duration Limitation. The maximum length of any non-compete with a Covered Healthcare Worker is one year following the termination of employment. Under the prior law, what constituted a “reasonable” temporal restraint varied in each case.
2. Geographic Limitation. The maximum geographic scope of any non-compete with a Covered Healthcare Worker is a five-mile radius from the location where the Covered Healthcare Worker “primarily practiced” before termination. Previously, whether a geographic limitation was “reasonable” varied greatly and was dependent on numerous factors relating to the scope of the physician’s work.
3. Mandatory Buyout Cap. SB 1318 keeps the prior law’s buyout requirement—but adds clarity and a ceiling. Specifically, any buyout option with a Covered Healthcare Worker cannot exceed one calendar year of the worker’s prior total salary and wages. Previously, the Act required the buyout price to be “reasonable” or—in the event of a dispute—to submit the question to a neutral arbitrator.
4. Writing Requirement. The “terms and conditions” of a non-compete with a Covered Healthcare Worker must now be “clearly and conspicuously stated in writing” to be enforceable.

Additional Specific Requirements for Physician Non-Competes

SB 1318 also places certain new and specific limitations on non-compete agreements with physicians—but not other Covered Healthcare Workers. These include:

• Good Cause Requirement. Physician non-compete agreements are now “void and unenforceable” if the physician is involuntarily discharged without good cause. The statute defines “good cause” as “a reasonable basis for discharge of a physician from [the] 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.”

Exception for Those Engaged in Administrative Work

Importantly, SB 1318’s limitations apply only to Covered Healthcare Workers practicing medicine. Specifically, the statute clarifies that the “practice of medicine does not include managing or directing medical services in an administrative capacity for a medical practice.” Thus, doctors employed in an executive, administrative, or other management position—such as medical directors—are not covered by SB 1318.

Instead, non-competes with Covered Healthcare Workers employed in an “administrative” role are governed by the general and existing “reasonableness” standard articulated by Tex. Bus. & Com. Code 15.50(a)—provisions that apply to all other non-competes in Texas. Accordingly, non-competes with Covered Healthcare Workers in an administrative-only role must be reasonable as to time, geography, and scope of activity; and they must be tailored to protect an employer’s legitimate business interests. But they are not subject to SB 1318’s more stringent limitations.

Key Takeaways for Employers

SB 1318 will go into effect on September 1, 2025 and only applies to non-competes “entered into or renewed” on or after this date. Accordingly, physician non-compete agreements executed before September 1 remain governed by Texas’s preexisting law. Importantly, however, such agreements often contain “auto renewal” provisions. If an existing agreement is renewed or re-executed after September 1, it will fall under SB 1318’s purview. To that end, every business that employs Covered Healthcare Workers should take steps to ensure both compliance with the new law and that their interests are protected through enforceable restrictive covenant agreements. At a bare minimum, employers should consider the following:

1. Re-draft Future Agreements for Compliance. While SB 1318 is not retroactive and should not affect existing agreements, employers must draft future non-competes to ensure compliance with SB 1318. At a minimum, the agreements entered into after September 1 must include: (i) buyout clauses with statutorily compliant caps; and (ii) limitations on both the duration and geographic scope of non-compete provisions as required by statute. Moreover, the agreements should clearly set forth all terms, obligations, and restrictions in the agreement to ensure enforceability and transparency.
2. Clarify “Good Cause” in Physician Agreements. Employers should update their agreements with physicians to clearly define “good cause” for termination, as the new law restricts the enforceability of non-competes to situations where the physician was terminated for good cause. Precise drafting is essential to avoid ambiguity and disputes about what constitutes “good cause.”
3. Consider Modifying the Scope of Restrained Activity. As noted above, SB 1318’s limitations apply to non-competes “relating to the practice of medicine.” Thus, employers should consider whether a non-compete that only restricts non-clinical activities provides sufficient protection. If so, SB 1318’s limitations could be avoided.
4. Don’t Forget the Surviving, Preexisting Limitations. Healthcare employers should recall that SB 1318 did not do away with other preexisting limitations on Texas physician non-competes. For example, physician non-competes must still: (i) permit the physician access to a list of patients seen in the preceding year; (ii) provide for access to medical records with patient authorization; (iii) ensure patient records are provided to a previously-employed physician in the manner they are regularly maintained; and (iv) ensure the physician can continue providing treatment to patients with acute illnesses.

SB 1318 brings significant changes to Texas non-competes used in the healthcare space. Accordingly, employers should take steps to ensure that all non-compete agreements with physicians and other healthcare practitioners comply with the law’s new limits before its effective date on September 1, 2025.

* Casey Fizer is a summer associate in the firm’s Dallas office.