With Senate Bill 1318, signed by Governor Greg Abbott on June 20, 2025, Texas makes significant changes to its law governing noncompete clauses in physician and other health care practitioner contracts. The Texas amendment follows a recent nationwide trend to restrict or eliminate noncompete clauses in health care provider contracts. Similar actions have recently been taken in Colorado, Indiana, Maryland, Montana, Oregon, and Utah.
The new Texas requirements apply to all noncompete agreements entered into or renewed on or after September 1, 2025.
What’s Changed?
SB 1318 amends Texas Business & Commerce Code Section 15.50(b) to apply new restrictions for physician noncompetes. To be enforceable, a noncompete clause must:
- Include a buyout option capped at the physician’s total annual salary and wages at the time the contract is terminated (previously, the buyout amount was only required to be “reasonable” or an amount determined by an arbitrator).
- Have an expiration of no more than one year after the contract is terminated.
- Limit the geographic radius to five miles of the physician’s primary practice location at the time the contract is terminated.
- Be in clear writing.
There is also a new provision stating that a noncompete clause is void if the physician is involuntarily discharged without “good cause” (i.e., unrelated to the physician’s conduct, job performance, or employment record).
SB 1318 clarifies that the “practice of medicine” does not include management, medical director, or other administrative services, meaning the noncompete restrictions do not apply to a physician’s provision of these services. Though the bill limits this definition to the context of physician noncompetes, including a distinct carve-out for administrative services from the practice of medicine may provide further support for the use of “friendly PC-MSO” models in the state, because it shows a legislative understanding that administrative services are distinct from the provision of medical services.
What’s New?
SB 1318 also adds new Section 15.501 that extends the new physician noncompete requirements to other health care professionals, including dentists, nurses, and physician assistants. Now, as of September 1, 2025, employment contracts with these professionals that include noncompete provisions must also include the buyout cap, one-year expiration, and five-mile radius to be enforceable.
Takeaways
With the adoption of SB 1318, health care employers may need to adjust their contract terms to align with the new legal landscape. Health care employers should consider the following steps before SB 1318 goes into effect on September 1, 2025:
- Update contract templates to reflect the one-year duration, five-mile radius, and buyout ceiling requirements for use in drafting new contracts entered into after the effective date.
- Include a defined “primary practice location” in contracts.
- Inventory existing contracts that will renew after September 1, 2025 and note how they may need to be amended to comply with SB 1318.
- Ensure termination procedures include clear documentation of when termination is for good cause, including provider conduct or job performance issues that prompted the termination.
Overall, the passage of SB 1318 reflects an evolving approach to noncompete agreements in the health care industry. As a reminder, existing noncompete agreements that were entered into or renewed before September 1, 2025, are grandfathered and remain enforceable. However, any existing contracts that are renewed on or after September 1 will be subject to SB 1318 and should be reviewed for compliance with the new law.
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