On June 20, 2025, Texas Governor Greg Abbott signed into law Senate Bill 1318 (SB 1318), which amends Section 15.50 of the Texas Business and Commerce Code, commonly referred to as the “Texas Covenants Not to Compete Act.” SB 1318 significantly tightens restrictions on the permitted use of covenants not to compete for physicians and certain other healthcare practitioners, including dentists, nurses, and physician assistants (“Healthcare Practitioners”). The provisions of SB 1318 take effect and will apply to any non-compete entered into or renewed on or after September 1, 2025.

Below is a summary of key provisions of SB 1318 and resulting changes to the existing framework for physician and Healthcare Practitioner non-competes in Texas:

Key Provisions

• 1 Year Maximum Duration – Any non-compete clause seeking to limit or restrict the professional licensed practice of any physician or Healthcare Practitioner is now limited to a period of no more than one (1) year following termination.
• 5 Mile Geographic Cap – The geographic reach of a non-compete clause seeking to limit or restrict the professional licensed practice for any physician or Healthcare Practitioner is limited to a 5-mile radius from the practitioner’s primary workplace.
• Mandatory Buyout Option – While healthcare employers have long been required to include a buyout option for physician non-competes, employers must now include buyout options in every non compete that seeks to limit or restrict the professional licensed practice of any physician and any Healthcare Practitioner, in each case, giving such practitioners the right to pay a buyout amount to eliminate an otherwise enforceable non-compete restriction. Further, no buyout amount may exceed a practitioner’s total annual salary and wages at the time of termination.
• New “Void and Unenforceable” Provisions for Physician Non-Competes – SB 1318 expressly states that “a covenant not to compete relating to the practice of medicine is void and unenforceable against” a licensed physician “if the physician is involuntarily discharged . . . without good cause.” As such, unless there is a reasonable basis for discharge of a physician from contract or employment that is directly related to the physician’s conduct, a physician may not be subject to an otherwise enforceable non-compete if a physician is involuntarily discharged. Employers should address this aspect by paying close attention to how “cause” is defined in any agreements with physicians and other Healthcare Practitioners.

Impact of SB 1318

• For Practitioners – SB 1318 significantly enhances mobility. Shorter duration and limited geographic restrictions ease professional transitions, and the use of consistent buyout calculations ensures professionals can voluntarily enter a restrictive period while keeping financial exposure in check.
• For Employers – Healthcare employers will need to review and potentially revise existing provider agreements, adjusting clauses to align with the new limits. They must also anticipate an eventual buyout or risk having non-compliant clauses struck as unenforceable. Transparent communication of buyout terms will be essential, as will proactive efforts to ensure all agreements with any physicians and other Healthcare Practitioners align with the new law.
• Policy Context – This new law aligns with a broader trend in Texas and nationally toward greater workforce mobility within the healthcare industry.

Practical Compliance Guidance

• Before September 1, 2025 – Employers should audit existing contracts, flagging those set for renewal and contracts expected to be used for new hires. Template agreements expected to be entered into on or after September 1, 2025, should be updated to reflect the maximum one-year term, a 5-mile radius, and the required reasonable buyout clause.
• Drafting Buyout Clauses – These must clearly specify how the buyout amount is calculated and ensure it does not exceed the practitioner’s annual compensation. Clear documentation minimizes future disputes.
• Monitor Enforcement – Record contract dates, buyout transactions, and ensure practitioners understand their rights. Failure to comply risks rendering the entire non-compete unenforceable under Texas law.

Final Comments

SB 1318 marks a significant shift in Texas employment law by curtailing the reach and enforceability of non-compete provisions in the healthcare industry. Employers need to be mindful of the changed landscape and act promptly to revise contracts and processes to ensure timely and full compliance with the amendments brought about by SB 1318 by the deadline of September 1, 2025.