Change is on the horizon for Texas healthcare providers

On June 20, 2025, Governor Greg Abbott signed Senate Bill (SB) 1318 into law, altering the landscape of noncompete agreements related to the practice of medicine for doctors, dentists, nurses, and physician assistants by modifying Texas Business and Commerce Code §15.50 and 15.501. Noncompete agreements for healthcare professionals who manage or direct medical services in an administrative capacity do not trigger the application of this law.

Buy-out clause

Starting on September 1, 2025, medical noncompete agreements entered into or renewed in Texas must include a buy-out clause and are limited both in time and geographical scope. A buy-out clause allows the person restricted by the agreement to pay so that they are released from their contractual obligations.

Previously, buy-out clauses had to meet the “reasonable price” standard. Now, buy-out clauses are subject to a maximum threshold. They cannot exceed the total annual salary or wages at the time of termination. Additionally, agreements are valid for a maximum of one year and cannot exceed a radius greater than five miles from the primary location that the provider worked in.

Good cause

All noncompete agreements become null and void—making them legally unenforceable—if the provider is fired without “good cause.”