(July 17, 2025): The Texas Legislature recently passed and Texas Governor Greg Abbott signed SB 1318,[1] a new act amending Section 15.50 of the Texas Business and Commerce Code relating to physician noncompete clauses, and adding a new Section 15.501. The new law imposes explicit limits on the period and geographic region for physician non-compete agreements, sets a maximum price for the mandatory non-compete buyout, and expands the law to cover non-compete agreements with dentists, nurses, and physician assistants. The law goes into effect on September 1, 2025.
I. What is a Covenant Not to Compete / Noncompete Provision?
Covenants not to compete are often included in physician employment and independent contract agreements in order to restrict where a physician may practice for a period of time after he or she leaves a position. These provisions generally aim to protect the employer’s or healthcare organization’s patient base, confidential information, and workforce. They also prevent a departing physician from working for directly competing practices or setting up their own practice within close proximity to their previous employer.
II. The Old Rule on Texas Noncompete Provisions:
Prior to the changes made by SB 1318, Texas Business & Commerce Code Section 15.50 set general terms for when a noncompete will be enforceable against a physician:
- it must contain reasonable restrictions as to time, geographic area, and scope of activity to be restrained;
- not impose a greater restraint than is necessary to protect the goodwill or other business interest of the employer or contracting healthcare provider;
- must allow a departing physician access to a list of his or her patients seen or treated within the year prior to termination and access to patient medical records;
- must permit the departing physician to continue caring for a patient during an acute illness even after the contract or employment terminates; and,
- must include a buyout provision at a reasonable price.
III. The Impact of SB 1318 on Texas Noncompete Provisions:
The amendment to Business & Commerce Code Section 15.50, as found in SB 1318, maintains the previous terms regarding access to patient records and the ability to continue acute care after termination, but imposes specific restrictions on the duration of a noncompete agreement and the geographic area it may cover. Significantly, it adds some specific new requirements if a noncompete is to be enforceable against a physician:
- noncompete covenants are only enforceable for up to a year after a contract is terminated;
- the geographic area that a noncompete clause covers may only extend to a maximum five-mile radius from the physician’s primary practice location prior to contract termination;
- the buyout price for a covenant can be no greater than the physician’s salary as of termination of the contract or employment.
SB 1318 also clarifies the scope of agreements to which Section 15.50 applies. It will only apply to a noncompete related to the “practice of medicine,” which does not include any directorial or managerial work for a medical practice or other health care provider. Also, a noncompete will be void and unenforceable against a physician who is discharged without “good cause,” which is defined as “a reasonable basis for discharge that is directly related to the physician’s conduct on the job or otherwise, job performance, and contract or employment record.”
Finally, as mentioned above, SB 1318 adds a new Business & Commerce Code Section 15.501 mirroring the language of Section 15.50 and applying it to dentists, nurses (including LVNs, RNs and advance practice nurses), and physician assistants.
IV. Effective Date of SB 1318 and Actions Needed When Drafting New Agreements:
This amended law is set to take effect as of September 1st, 2025. There is no requirement to amend existing agreements to fit these new legal requirements. However, these new requirements must be implemented as of September 1st in any new contract that includes a physician noncompete, or any renewal of an existing contract.
If you have questions about physician noncompete agreements or how SB 1318 affects your business or contract, contact health care attorney Jennifer Papapanagiotou at Liles Parker for assistance.
Jennifer Papapanagiotou is an experienced health law attorney. Jennifer and the other attorneys at Liles Parker represent healthcare providers and suppliers around the country. Should your practice or clinic need experienced health law legal counsel, give us a call for a free consultation. Jennifer can be reached at: 1 (800) 475-1906.