Not Everything Is Bigger in Texas: Texas Narrows the Scope of Enforceable Non-Competition Agreements for Healthcare Practitioners

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Andrew M. DeLucia

August 18, 2025

The landscape for non-competition agreements in the healthcare industry in Texas is about to experience a change.  The quick take-away is that the change will increase mobility for licensed healthcare practitioners.

Texas Senate Bill (SB) 1318 amends Section 15.50 of the Texas Business and Commerce Code to narrow the scope of enforceable non-competition restrictions for licensed physicians and introduces Section 15.501 to extend similar limitations on agreements with other licensed healthcare practitioners, such as nurses, physician assistants, and dentists.  SB 1318 applies to non-competition agreements that are entered into or renewed after September 1, 2025, when the legislation takes effect.  Among other things, the law places stricter limitations on these agreements, including time and geographic restrictions, and clarifies buyout provisions.

General Rule Applicable to Non-Competition Agreements
 Section 15.50 outlines the criteria for enforcing non-competition agreements in Texas.  Generally, to be enforceable, a non-competition restriction must be ancillary to or part of an otherwise enforceable agreement and must contain reasonable limitations on time, geographical area, and scope of activity that are reasonable and do not impose greater restraints than is necessary to protect the goodwill or other business interests of the employer.

Changes Applicable to Healthcare Practitioners
SB 1318 amends Section 15.50 to include the following:

• Length of Restriction: Non-competition restrictions can last no longer than one year after termination of the physician’s contract or employment.
• Geographic Scope: Non-competition restrictions must be limited to a five-mile radius from the physician’s primary practice location at the time of termination.
• Buyout: The physician shall be able to pay a “buyout” of the non-competition restriction capped at the physician’s total annual salary and wages at the time of termination.  Previously, the buyout provision was subject to a “reasonable price” standard that was potentially determined by an arbitrator.
• Conspicuous Writing: The terms and conditions of the agreement must be stated “clearly and conspicuously in writing.”
• Involuntary Discharge Without Cause: If a physician is discharged without “good cause,” the non-competition restriction becomes void and unenforceable.  The statute will define “good cause” as a “reasonable basis” that is “directly related” to the physician’s conduct, job performance, or contract or employment record.

Extension to Other Healthcare Practitioners
SB 1318 also introduces Section 15.501, extending similar limitations on non-competition agreements to licensed healthcare practitioners of “dentistry or nursing, or [who] practice as a physician assistant.”

Recommendations for Employers
In anticipation of the September 1, 2025 effective date of SB 1318, Texas employers in the healthcare industry should take the following actions:

• Ensure all agreements “clearly and conspicuously” state the terms and conditions in writing of any non-competition restriction, including the changes required by SB 1318.
• Update any template non-competition agreements to ensure that they comply with the new geographic, time, and buyout requirements for agreements after September 1, 2025.
• For practitioners who have multiple work locations, clearly identify the “primary practice location” to avoid disputes over the five-mile radius restriction.
• Establish regular practices and protocols for documenting terminations, in particular, to establish “good cause,” when necessary.

The author of this article, Andrew M. DeLucia, is a member of the Bars of Pennsylvania and New Jersey.  This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in Pennsylvania, New, Jersey, Texas, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist.  Always consult an attorney with specific legal issues.