Texas Doctor Non-Compete Law: What SB 1318 Changes in 2025
Change is on the Horizon for Health Care Providers
Author: Jacob M. Monty
On June 20, 2025, Governor Abbott signed into law SB 1318 altering the landscape of non-compete agreements related to the practice of medicine for doctors, dentists, nurses, and physician assistants modifying Texas Business and Commerce Code §15.50 and 15.501. Non-compete agreements for health care professionals who manage or direct medical services in an administrative capacity do not trigger the application of this law.
Starting on September 1, 2025, non-compete agreements entered into or renewed 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 the primary location that the provider worked in.
All non-compete agreements become null and void, making them legally unenforceable, if the provider is fired without “good cause”. The statue defines good cause as, “A reasonable basis for discharge directly related to the physician’s conduct, including job performance and contract or employment record. Lastly, the law requires that all terms are clearly written.
SB 1318 removes some of the ambiguity that existed with medical non-compete agreements. By clearly defining the maximum threshold of buy-out provisions, time, and geographical scope physicians and their employers no longer have to litigate or negotiate the meaning of reasonableness regarding those terms.
This law marks a shift in the non-compete landscape. In recent years some states have opted to ban or highly restrict non-compete agreements. In 2024, the Federal Trade Commission issued a final order attempting to ban nationwide non-compete agreements, but the rule was halted by the U.S. District Court for the Northern District of Texas which issued a permanent injunction. The law intended to remove non-compete agreements in nearly all industries.
This article was originally written by Jacob M. Monty for the Texas Employment Law Letter. Jacob Monty is the Managing Partner of Monty & Ramirez, LLP, in Houston and Dallas.