Texas further restricts healthcare non-compete agreements

Governor Greg Abbott signed Senate Bill 1318 on June 20, 2025, expanding restrictions on non-compete agreements to include nurses, physician assistants, and dentists alongside physicians.

What happened

Texas expanded its restrictions on healthcare non-compete agreements through Senate Bill 1318, which Governor Abbott signed on June 20, 2025. The legislation amends the state's Covenants Not to Compete Act and takes effect on September 1, 2025. The new law establishes additional restrictions for physician non-compete covenants and extends many existing physician restrictions to nurses, physician assistants, and dentists. 

The backstory

SB 1318 follows growing national momentum among policymakers and advocacy groups to curtail restrictive employment covenants in healthcare. The legislation comes after the Federal Trade Commission's failed attempt to implement a nationwide ban on many non-competes, prompting states like Texas to reevaluate their own laws. Advocacy groups, including the Texas Medical Association and other practitioner-focused organizations, successfully pushed for the legislation despite opposition from the Texas Hospital Administration and other employer groups. Texas has long required non-competes to contain reasonable limitations on duration, geographic reach, and scope of activity while imposing no greater restraint than necessary to protect goodwill or other business interests.

Going deeper

The new requirements impose several changes for healthcare practitioners:

Broader practitioner applicability: Additional restrictions now apply to licensed physicians, dentists, professional or vocational nurses, and physician assistants, expanding beyond the previous physician-only requirements.

One-year maximum duration: Non-compete restrictions cannot extend longer than one year after the healthcare practitioner's employment or contractual relationship ends, replacing the previous case-by-case reasonableness standard.

Five-mile geographic limit: Non-compete restrictions must be geographically limited to a five-mile radius from where the healthcare practitioner primarily practiced prior to termination.

Mandatory buyout option: The buyout price cannot exceed one year of the healthcare practitioner's annual salary and wages as of termination. Previously, the buyout amount was determined as a reasonable price or by arbitrator.

Clear written disclosure: Non-compete terms must be clearly and conspicuously stated in writing to enhance transparency.

For physicians specifically, additional changes include making non-competes void if involuntarily terminated without "good cause," defined as a reasonable basis for discharge directly related to the physician's conduct, job performance, and employment record. The requirements do not apply to administrative activities like managing or directing medical services in an administrative capacity.

What was said

According to the Texas Public Policy Foundation's Center for Health and Families, "Non-compete agreements are eroding the physician-patient relationship" and "deny 45% of American physicians the ability to work at multiple care sites, open their own practices, offer free care to indigent populations, or continue treating their patients unless they relocate—sometimes hundreds of miles—from their former employer."

The organization also stated that "According to a 2023 study on disruption of the patient-primary care physician (PCP) relationship, 65% of patients saw their PCP for at least three years and 68% of patients tried to follow a departing PCP."

In the know

The amendments distinguish between clinical practice and administrative roles. Non-competes relating to managing or directing medical services in an administrative capacity, such as medical director agreements, remain subject to existing reasonability standards under the original Act rather than the new healthcare practitioner restrictions. Patient-access provisions remain unchanged, requiring non-compete agreements with physicians to allow access to patient lists, medical records, and continuing care during acute illness after termination.

Why it matters

This legislation impacts healthcare employment contracts across Texas, affecting thousands of healthcare practitioners beyond just physicians. The standardized restrictions eliminate the previous unpredictability of court-by-court reasonableness determinations, creating clearer expectations for both employers and practitioners. The one-year maximum and five-mile radius limitations will likely increase healthcare worker mobility, particularly in rural areas where geographic restrictions previously varied widely based on population density and practice distribution. Healthcare employers must now reassess their competitive strategies and retention methods, as traditional non-compete agreements become less restrictive. The legislation also sets a precedent for other states considering similar healthcare workforce mobility reforms, potentially influencing national healthcare employment practices.

The bottom line

Healthcare employers in Texas must review and update their employment agreements before September 1, 2025, to ensure compliance with the new restrictions. Organizations should consider dividing non-competes to separate clinical practice restrictions from administrative and business operations to maintain flexibility. The standardized approach reduces legal uncertainty but requires proactive contract management to avoid enforcement challenges.

FAQs

Will these changes apply retroactively to existing non-compete agreements?

No, SB 1318 applies only to agreements entered into or renewed on or after its effective date, September 1, 2025.

How does the new law affect locum tenens or temporary healthcare workers?

Locum tenens roles are typically exempt from non-compete enforcement due to their short-term nature, but affected parties should review contract language carefully.

Can employers still use non-solicitation or confidentiality clauses instead?

Yes, employers can still enforce non-solicitation and confidentiality agreements as those are not restricted under the new law.

How will this impact healthcare access in underserved areas?

The increased mobility may improve access in rural and underserved regions by making it easier for clinicians to stay local after leaving a job.