IN BRIEF: Texas Enacts New Restrictions on Non-Compete Agreements with Healthcare Professionals

IN BRIEF: Texas Enacts New Restrictions on Non-Compete Agreements with Healthcare Professionals

During the 2025 Texas Legislative session, the Texas legislature amended Texas’ non-compete laws for certain healthcare professionals by enacting SB 1318. SB 1318 restricts non-compete agreements with physicians, dentists, professional and vocational nurses, and physician assistants with the goal of improving patient care and increasing provider mobility. The law only applies to agreements entered into or renewed on or after September 1, 2025; however, it significantly changes how healthcare employers may structure agreements and protect their interests in the future.

For non-compete agreements subject to SB 1318, the following requirements apply:

1. Buy-Outs: Non-compete agreements must provide a buyout provision allowing the physician to pay to be released from the non-compete. The buyout must be for an amount no greater than the physician’s annual salary and wages at the time of their termination.
2. Duration Limitation: Covenants not to compete cannot last longer than one year after the termination of the employment or contract.
3. Geographic Scope Restriction: The geographic area subject to the non-compete is limited to a five-mile radius from the primary practice location of the physician prior to termination.
4. Clarity and Transparency: Terms and conditions in the non-compete agreement must be clearly and conspicuously stated in writing.
5. Termination without Good Cause: Where a physician is involuntarily terminated without “good cause,” meaning a reasonable basis for discharge of a physician directly related to the physician’s conduct, a non-compete agreement is void and unenforceable.

Importantly, SB 1318 clarifies that the law does not apply to those managing or directing medical services in an administrative capacity for a medical practice or other health care providers.

Texas’ new law is consistent with the broader national movement to limit the use of non-compete agreements in healthcare. Some states have even prohibited them altogether. Colorado, for instance, has explicitly prohibited noncompete agreements that restrict the practices of medicine, advanced practice registered nursing, or dentistry. As these laws develop, it is imperative for all health care industry professionals to monitor and adapt to them. If you or your business may be affected, please contact Kessler Collins to assist you in navigating these challenges and protecting your interests.