What Texas Physicians Need to Know About Changes to Healthcare Non-Competes

Oct 24

Texas significantly changed its rules for healthcare non-competes through Senate Bill 1318. Effective September 1, 2025, the legislation amends Section 15.50 of the Texas Business and Commerce Code, adds a new Section 15.501 covering the enforceability of non-competes for non-physician health care practitioners, and makes the amended statutory framework the exclusive test for enforceability. For healthcare employers and licensed practitioners, the result is a more rigid statutory structure, with less room to rely on broad reasonableness arguments that once carried more weight in restrictive covenant disputes.

The practical effect is significant. Texas still permits non-competes in the healthcare setting, but the revised statute has narrowed what is enforceable for covered practitioners and imposes more specific rules than before. Employers should review existing agreements, templates, and renewal provisions, and practitioners should review their contracts before a renewal, a departure, or a separation dispute turns an issue into litigation.

The Framework Prior to SB 1318

Even before SB 1318, Texas treated non-competes for physician differently from those applicable to other employees. Under the prior version of Section 15.50(b), physician covenants had to preserve access to patient lists, provide access to patient medical records on reasonable terms, include a buyout provision at a reasonable price (or a price set by an arbitrator if the parties could not agree), and avoid interfering with the physician’s ability to provide continuing care to a patient during an acute illness.

Those physician-specific protections existed alongside the broader Texas requirements that a non-compete must be ancillary to or part of an otherwise enforceable agreement and contain reasonable limitations on duration, geography, and scope of activity.

Courts and litigants often argued over what was “reasonable” in the particular circumstances. SB 1318 was designed to reduce uncertainty for covered healthcare practitioners by adding more specific statutory boundaries.

What Changed for Physicians

SB 1318 did not replace the prior physician safeguards so much as tighten the framework by layering new, more rigid restrictions on top of the existing protections. For a physician non-compete entered into or renewed on or after September 1, 2025, Texas law now requires:

Clear written terms. The non-compete’s terms and conditions must be clearly and conspicuously stated in writing.
A one-year maximum duration. The covenant must expire no later than one year after the physician’s termination date.
A five-mile geographic cap. The restricted area cannot exceed a five-mile radius from the physician’s primary practice location before termination.
A capped buyout right. The physician must be allowed to buy out of the restriction for no more than the physician’s total annual salary and wages at the time of termination. This requirement replaces the former “reasonable price or arbitrator” mechanism completely.
Patient list access. The covenant must preserve access to a list of patients seen or treated by the physician during the year before termination.
Medical records access. The physician must be given access to patient medical records on reasonable terms.
Continuing care protection. The covenant cannot interfere with the physician’s ability to provide continuing care to a patient during an acute illness after the physician’s termination.
A new involuntary termination rule. If the physician is involuntarily discharged without good cause, the non-compete is void and unenforceable. “Good cause” 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 or otherwise, job performance, and contract or employment record.

The addition of the involuntary termination rule has major implications for both drafting and separation strategy. Employers can no longer assume that a physician covenant will remain enforceable after every involuntary separation. The stated grounds for termination, the employer’s documentation, and the factual basis for the separation may now directly determine whether the covenant survives at all.

At the same time, the phrase “good cause” is likely to produce legal disputes. The statute provides a definition, but there is still room for disagreement over how that definition applies to no-fault separations, internal disputes over productivity or culture, alleged professionalism issues, practice restructuring, or situations in which the employer’s documentation is thin. Until Texas courts develop a body of case law around the amended statute, prudent employers should avoid casual or poorly documented physician terminations when a restrictive covenant may later matter, and prudent physicians should review the stated basis for separation carefully before assuming a covenant remains enforceable.

The Effect on Administrative Roles

SB 1318 also added language stating that the “practice of medicine” does not include managing or directing medical services in an administrative capacity for a medical practice or other healthcare provider. That provision matters because many physicians perform mixed roles, combining direct patient care with medical directorship, operational oversight, compliance supervision, executive functions, or other similar responsibilities. The statute creates room to argue that administrative or managerial functions may need to be analyzed differently, but the scope of that distinction in mixed-role arrangements remains unsettled.

As a result, when a physician has a meaningful administrative role and the goal is to protect management functions, confidential strategic information, or operational leadership responsibilities, employers should address those concerns through carefully tailored provisions that do not cross the line into a restriction on clinical practice itself. Conversely, physicians should pay attention to whether a purportedly “administrative” restriction is really just a broader attempt to limit future patient care beyond the narrower bounds of the statute.

What Changed for Other Health Care Practitioners

SB 1318 extends certain statutory non-compete protections beyond physicians to “health care practitioners,” which includes licensed dentists, nurses, and physician assistants. For a non-compete entered into or renewed on or after September 1, 2025, the law requires:

Clear written terms. The non-compete’s terms and conditions must be clearly and conspicuously stated in writing.
A one-year maximum duration. The covenant must expire no later than one year after the practitioner’s termination date.
A five-mile geographic cap. The restricted area cannot exceed a five-mile radius from the location where the practitioner primarily practiced before termination.
A capped buyout right. The practitioner must be allowed to buy out of the restriction for no more than their total annual salary and wages at the time of termination.

Unlike physicians, the new statute does not include:

No rule for involuntary termination without good cause. Practitioners under Section 15.501 do not have the automatic “void if discharged without good cause” protection that physicians have.
No patient list access requirements. The statute does not require guaranteed access to patient lists.
No medical records access requirements. The statute does not require guaranteed access to medical records on reasonable terms.
No continuing care protections during acute illness. The statute does not expressly require that the covenant avoid interfering with continuing care during an acute illness.

This asymmetry matters in practice. Because different rules apply depending on whether the practitioner is a physician, dentist, nurse, or physician assistant, employers should not use a single restrictive covenant form for all providers.

Statutory Preemption and Exclusivity

SB 1318 also amended Section 15.52 to state that the statutory criteria in Sections 15.50 and 15.501, together with the procedures and remedies in Section 15.51, are exclusive and preempt other law. That is an important change because Texas non-compete disputes historically involved a large body of common-law arguments about scope, reasonableness, protectable interests, and reformation. After SB 1318, parties should expect courts to focus even more heavily on the statutory text when evaluating covered healthcare covenants.

This does not mean every interpretive question has disappeared. It does mean, however, that employers should be cautious about arguing that older common-law doctrines justify broader restrictions than the statute now allows.

Effective Date and Renewals

The transition rule is critical. The legislation applies only to covenants not to compete entered into or renewed on or after September 1, 2025. A covenant executed before the effective date may still be evaluated under prior law if it remains in place on its original term and has not been renewed.

This creates real risk for agreements with automatic-renewal or evergreen provisions. A healthcare employer may believe it is relying on an older restrictive covenant, only to discover that the contract renewed after the effective date now must satisfy the amended statute.

The cost of getting that wrong is not merely the loss of the covenant itself. Section 15.51(c) authorizes a court to award reasonable attorneys’ fees to a physician in certain circumstances involving the enforcement of covenants not to compete relating to the practice of medicine. An ill-advised effort to enforce a stale, non-compliant non-compete can therefore become an affirmative liability rather than just a failed claim.

Therefore, employers should review not only newly signed agreements. They should also examine renewal mechanisms in existing employment contracts, shareholder-related agreements, professional services arrangements, and other documents containing restrictive covenants affecting covered practitioners.

What the Law Does Not Change

Even with this expansion, several categories of restrictive covenants sit outside the new framework and remain governed by Texas’s existing laws on non-competes:

Equality in a healthcare equity context. Restrictive covenants tied to a physician’s ownership interest in a licensed hospital or licensed ambulatory surgical center are not governed by Section 15.50(b) and continue to be evaluated under general reasonableness principles.
Sale of a business. Non-competes arising in connection with the sale of a business are governed by the well-developed sale-of-business line of cases rather than the new healthcare practitioner-specific caps. Courts continue to give more deference to sale-of-business non-competes than to employment restrictions.
Confidentiality obligations. Ordinary confidentiality and trade-secret obligations remain enforceable under Texas law and are not directly affected by SB 1318.
Pure employee non-solicitation. Non-solicitation provisions limited to employees (not patients or referral sources) sit on a different footing and are not directly governed by the new statutory caps.
Pre-existing covenants not renewed. Covenants entered into before September 1, 2025, that are not renewed on or after that date remain evaluated under prior law for as long as they stay in place on their original terms.

Key Considerations for Employers

For employers, SB 1318 changes both contract drafting and operational risk management:

Update templates now. Review and revise template agreements for physicians, dentists, nurses, and physician assistants to ensure duration, geographic scope, buyout language, and conspicuous-writing requirements align with the statute.
Define “primary practice location.” Where possible, define the practitioner’s primary practice location with precision in the agreement, because the five-mile limitation turns on where the practitioner primarily practiced before termination.
Tighten compensation language for buyouts. Draft the buyout provision so it is clear how “total annual salary and wages at termination” is calculated, especially for productivity-based, collections-based, hybrid, or recently modified compensation arrangements, while remaining faithful to the statutory cap.
Treat physician terminations more carefully. Because enforceability may depend on whether a physician was involuntarily discharged without good cause, internal records, disciplinary history, performance documentation, and stated reasons for separation are now more critical.
Document performance and conduct. Weak documentation can affect not only employment-law optics but also the survivability of the restrictive covenant itself, and an enforcement attempt that fails on those grounds can expose the employer to an attorneys’ fee award under Section 15.51(c).
Tailor covenants for mixed roles. For physicians in both clinical and administrative roles, describe duties and allocate restrictive covenants more carefully, rather than using a blunt, one-size-fits-all clause that blurs clinical practice and administrative capacity.
Review renewal provisions. Examine automatic-renewal and evergreen provisions in employment contracts, shareholder agreements, and professional services arrangements, since a covenant renewed on or after September 1, 2025, must satisfy the amended statute.

Key Considerations for Physicians and Other Practitioners

For physicians, SB 1318 creates both protections and decision points:

Clearer statutory limits. Physicians now have explicit caps on duration, geography, and buyout amount, plus a potentially powerful protection when involuntarily discharged without good cause.
New protections for other practitioners. Dentists, nurses, and physician assistants also receive express one-year, five-mile, buyout, and clear-writing limits that did not previously exist in the same form.
Know the differences from physician rules. Dentists, nurses, and physician assistants do not have the physician-specific “void if discharged without good cause” rule or the patient-list, medical-record, and acute-illness protections. Contract review remains important.
Review before signing or renewing. Do not treat pre-2025 physician non-compete assumptions as automatically valid going forward; review restrictive covenant language before signing, renewing, or exiting an agreement.
Pay attention to renewal dates. A restrictive covenant drafted under prior law can become subject to the new analysis when the contract is renewed on or after September 1, 2025, which can create negotiation leverage but also requires proactive review.
Read broad restrictions with care. Because the case law is still developing, practitioners should read broadly worded restrictions with care, especially where buyout provisions, geographic scope, or the circumstances of separation may affect enforceability.

The Bottom Line

SB 1318 did not ban healthcare non-competes in Texas. It did, however, narrow the enforceable lane for covered practitioners and make the statutory text more important than ever.

Whether you are an employer reviewing an existing contract or an employee with a new employment offer, having experienced legal counsel is essential.

Ready to start? Click here to schedule a consultation with Kalaria Law today to ensure that your non-compete is compliant with current law.

Disclaimer: This article is for general informational purposes only and does not constitute formal legal advice.

Emily Nguyen