Sweeping changes to noncompete covenants are set to take effect on September 1, 2025, for health care employers in Texas. These changes stem from recent amendments to Texas’ noncompete statute. These changes will:

• Expand Texas’ heightened enforceability requirements to nearly all health care practitioners.
• Impose strict limits on the duration and geographic area of applicable noncompete covenants.
• Cap the buyout option that must be provided to covered health care practitioners.

Who Is Impacted?

The recent amendments to Texas’ noncompete statute were enacted through Texas Senate Bill 1318 (SB 1318) that was signed into law by Governor Abbott on June 20, 2025. It will impact Texas-licensed physicians, dentists, nurses (including advanced practice nurses), physician assistants, and health care entities that execute noncompete covenants with the aforementioned health care practitioners. Downstream, these amendments have the potential to alter various health care business models, and the value assigned to health care entities in mergers and acquisitions.

What Are the Key Changes?

Since 1999, the Texas noncompete statute has imposed heightened requirements for securing enforceable covenants with physicians licensed by the Texas Medical Board. SB 1318 takes these protections a step further by incorporating the following heightened requirements:

• Mandatory/Salary-Capped Buyout Options – Similar to physicians, mandatory buyout clauses must now be integrated into noncompete covenants with dentists, nurses and physician assistants. The amendments eliminate the statute’s open-ended “reasonable price” requirement and will now require buyout clauses to not exceed a covered individual’s “total annual salary and wages at the time of termination.” For many agreements, this will result in a significant reduction from previous buyout clauses.
• One-Year Duration – Noncompete covenants that are executed with physicians and other health care practitioners will be limited to one (1) year following the termination of the covered individual’s contract or employment.
• Five-Mile Radius – The geographic area of noncompete covenants that are executed with physicians and other health care practitioners will now be limited to “a five-mile radius from the location at which the health care practitioner primarily practiced before the contract or employment terminated.”
• Termination Without “Good Cause” for Physicians – The circumstances of a physician’s termination will impact the enforceability of their noncompete covenant. Noncompete covenants will be void and unenforceable against a physician if they are involuntarily terminated without “good cause,” which is defined as “a reasonable basis for discharge . . . that is directly related to the physician’s conduct, including the physician’s conduct on the job, job performance and contract or employment record.” Importantly, this distinction is limited to physicians. The enforceability of noncompete covenants that are executed with other health care providers will not be impacted by the circumstances of their termination.
• Clear and Conspicuous Language – Noncompete covenants that are executed with physicians and other health care practitioners must now “have terms and conditions clearly and conspicuously stated in writing.” SB 1318 does not expand further on this requirement, but it will result in noncompete covenants being susceptible to attack on this basis.
• Managerial/Administrative Carve-Out – Before the enactment of SB 1318, Texas’ heightened enforceability requirements extended to most physician-entered noncompete covenants “related to the practice of medicine” (excluding certain business ownership interests). This created some ambiguity regarding when these heightened requirements were triggered. SB 1318 partially resolves this by emphasizing “the practice of medicine does not include managing or directing medical services in an administrative capacity for a medical practice or other health care provider.” Stated differently, noncompete covenants that are executed with physicians employed solely in a managerial or administrative capacity will not be subject to these heighted requirements.

When Do These Changes Go into Effect?

The changes go into effect on September 1, 2025. Importantly, these changes are prospective in nature and only apply to noncompete covenants that are entered into or renewed on or after this date—meaning that preexisting noncompete covenants will continue to be governed by Texas’ noncompete laws existing before the effective date of SB 1318.

What’s Next?

These amendments are consistent with the nationwide trend towards more restrictions on the permissive use of noncompete covenants. While these amendments are not retroactive, it is conceivable that judges may still take these amendments into consideration when analyzing the enforceability of preexisting covenants in future litigation under Texas’ current “no greater than necessary” standard. In turn, employers will need to weigh whether they make these changes on a rolling basis or preemptively amend existing agreements and consider other avenues for protection.