Labor & Employment Blog

Noncompetition restrictions continue to evolve across the nation. Texas, generally known for its business-friendly legal landscape, has taken a notable step in this arena by passing Senate Bill 1318. The new law takes effect on September 1, 2025, and affects covenants not to compete entered into or renewed with licensed physicians, dentists, nurses, and physician assistants. Although Texas already had special requirements for physician noncompetes, Senate Bill 1318 imposes additional restrictions on the scope of enforceable noncompetition covenants for physicians and a broader category of healthcare professionals, marking a significant shift in the state’s approach to such covenants. This state-level action comes as the Federal Trade Commission’s nationwide ban on noncompetes remains stalled in federal courts, with the agency deciding whether to defend its rule banning most noncompetes. Other states in 2025 have passed legislation to restrict noncompetes, which reflects a larger trend of states implementing their own restrictions while federal efforts remain in legal limbo. Texas has joined those states.

Existing Legal Framework

Restrictive covenants in Texas are governed by its Covenants Not to Compete Act. In general, the Act allows employers to enforce covenants not to compete if they are reasonable in scope, duration, and geographic area and are necessary to protect the employer’s legitimate business interests. Before Senate Bill 1318, the Act contained specific requirements for physician noncompetes—requirements relating to continued access to medical records and patient lists and continued treatment of patients suffering from an acute illness. The existing statute also required physician covenants to include an opportunity for the physician to buyout of the covenant at “a reasonable price” or as determined by an arbitrator.

New Requirements for Physician Restrictions and Other Healthcare Practitioners

Senate Bill 1318 imposes specific requirements for noncompetes with physicians licensed by the Texas Medical Board. While covenants still must contain a buyout provision, the buyout amount now cannot be greater than the physician’s total annual salary and wages at the time of termination. Additionally, enforceable noncompetes for physicians cannot be longer than one-year in length, and the geographical area cannot be greater than a five-mile radius from the physician’s primary practice location before termination. The terms and conditions must be clearly and conspicuously stated in writing.

Even if a restrictive covenant contains all these new requirements, Senate Bill 1318 still renders a noncompete void and unenforceable if the employer involuntarily discharges the physician without good cause. The new law defines “good cause” as a reasonable basis for discharge that is directly related to the physician’s conduct, including the physician’s conduct on the job or otherwise, job performance, or contract or employment record.

The new law applies to a group of healthcare practitioners whose agreements, thus far, had avoided specific scrutiny under the Act. Senate Bill 1318 changes that dynamic by imposing the same new restrictions on dentists, nurses, and physician assistants. Noncompetes with these healthcare practitioners must (i) contain a buyout not to exceed one year’s wages, (ii) not exceed one year in length, (iii) be limited to a five-mile radius from the professional’s primary practice location, and (iv) be written clearly and conspicuously.

Impact on Medical Providers and Employers

Senate Bill 1318 is poised to have a deep impact on both medical providers and employers in Texas. For medical providers, the law offers greater freedom to practice without the constraints of overly restrictive noncompetition agreements. This could lead to increased mobility and flexibility in career choices, ultimately benefiting patients through improved access to healthcare services.

For employers, particularly healthcare organizations, Senate Bill 1318 necessitates re-evaluation of existing noncompetition agreements to comply with geographic, temporal, and buyout requirements for agreements entered into after September 1, 2025. To better avoid the possibility of invalidating a noncompete by terminating a physician without good cause, contracts and termination paperwork should appropriately document job expectations, performance, and essential terms and conditions of employment. Employers also may need to develop new strategies to safeguard proprietary information, such as confidentiality agreements and trade secret protections.

Contact your Chamberlain Hrdlicka employment attorney to review your current or prospective covenants and help you understand your rights under this new law. We can help employers review and revise their existing contracts to ensure future agreements comply with the new law’s buyout, geographic, and duration limitations.

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