Texas Governor Greg Abbott, signed into law Senate Bill (SB) 1318, on June 20, 2025, creating greater restrictions on physician non-compete agreements and extending similar restrictions to other health care professionals, including dentists, nurses (including advanced practice nurses) and physicians assistants. The law went into effect on September 1, 2025, and affects healthcare practitioner non-compete agreements entered or renewed after that date. This law seeks to narrow the scope of enforceable non-compete provisions and reflects a shift in public policy toward greater mobility for healthcare providers.
Key Changes for non-compete Agreements under SB 1318
For covered providers, SB 1318 imposes the following new restrictions:
- Temporal Limits: All non-compete covenants must expire no later than one year from the termination of their employment or contract.
- Clarity and presentation: Terms and conditions of the agreement must be clearly and conspicuously stated in writing.
- Geographic Limits: Limit the restricted area to a five-mile radius from the physicians primary practice location at the time of termination.
- Buyout Requirement with cap: A non-compete agreement’s required buyout provision must be in an amount that is not greater than the physicians total annual salary and wages at the time of termination of the contract or employment which codifies what has been common practice relating to such buy outs.
- Administrative role exclusion: Clarifies that the practice of medicine does not include managing or directing medical services in an administrative capacity, such that non-compete agreements for such positions are not subject to the restrictions in subsection 15.50(b).
- Void and unenforceable (Physician Only): under SB 1318 non-compete agreements become completely void and unenforceable if a physician licensed by the Texas medical board is involuntarily discharged without good cause. Unlike the other changes in this bill, this requirement is only limited to physicians.
SB 1318’s Impact on Existing Contracts
Senate Bill 1318 is not retroactive so non-compete agreements entered or renewed before September 1, 2025, are not subject to the statute’s new limitations. This bill only applies to covenants not to compete entered or renewed after September 1, 2025. Any non-compete covenant entered or renewed prior to September 1, 2025, will be subject to prior law.
Conclusion
Texas SB 1318 marks a significant legislative shift in how healthcare employers can restrict competition by former employees with new caps on duration, geography, and buyout amounts. Although the law is not retroactive, its practical impact on existing contracts cannot be overstated. Evergreen clauses, amendments, and renewal dates will all determine whether a given agreement must comply with SB 1318 starting September 1, 2025. With proper planning healthcare employers can preserve their legitimate business interests while respecting the statutory boundaries now set by SB 1318.