Texas Legislature sets new limits on healthcare noncompetes

The Texas Legislature, through its passage of Senate Bill 1318, has significantly amended the Texas Business and Commerce Code regarding noncompete agreements for physicians and certain healthcare practitioners. These changes apply to any noncompete agreements that are entered into or renewed on or after September 1, 2025.

Key changes for physicians

Since 1999, Texas law has restricted the enforceability of physician non-competition covenants by requiring that (1) there be a buyout at a “reasonable price”; (2) any limitations as to time, geographical area, and scope be reasonable; and (3) the covenant not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.

The amendments to Section 15.50(b) of the Business and Commerce Code introduce the following new requirements for noncompete covenants relating to the practice of medicine involving physicians licensed by the Texas Medical Board:

• Buyout cap. The amount of the buy out of the non-compete must not be greater than the physician’s total annual salary and wages at the time of termination of the contract or employment.
• Time and geographic limits. The term of the covenant cannot exceed the one-year anniversary of the date the contract or employment was terminated. The geographic radius is limited to a maximum of five miles from the location where the physician primarily practiced before the contract or employment terminated.
• Involuntary discharges without good cause. The covenant cannot be enforced if the physician is involuntarily discharged from the contract or employment without good cause. “Good cause” is defined as a reasonable basis for discharge of a physician from a contract or employment 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.
• Clarity of terms. All terms and conditions must be clearly and conspicuously stated in writing.
• Administrative role exclusion. Clarifies that the “practice of medicine” does not include managing or directing medical services in an administrative capacity, such that noncompete agreements for such positions are not subject to the restrictions in Subsection 15.50(b).

New restrictions on healthcare practitioners

A new Section 15.501 creates new requirements in order for noncompete agreements for dentists, nurses (both professional and vocational) and physician assistants to be enforceable:

• Buyout option. Noncompete agreements must provide for a buyout at no more than the practitioner’s total annual salary and wages at the time of termination.
• Time and geographic limits. The agreement must expire within one year of termination and may not cover more than a five-mile radius from the practitioner’s primary practice location.
• Clarity of terms. All terms and conditions must be clearly and conspicuously stated in writing.

Preemption of other laws

The amendments to Section 15.52 make clear that the enforceability criteria and procedures outlined in Sections 15.50, 15.501, and 15.51 are exclusive and preempt any other law, including common law, related to noncompete agreements for covered healthcare practitioners.

Applicability

The new requirements apply to noncompete agreements that are entered into or renewed on or after September 1, 2025, while agreements executed or renewed before that date remain subject to prior law. Healthcare employers are encouraged to promptly review and update their noncompete agreements to ensure compliance with agreements entered into or which may renew, including automatic renewals, on or after September 1, 2025.

Special thanks to Summer Associate, Willa Scanlon for assisting in the preparation of this article.