On June 20, Gov. Greg Abbott signed into law significant amendments to the Texas Business and Commerce Code, as contained in Senate Bill 1318, that will substantially restrict noncompete agreements for physicians and other healthcare providers entered into or renewed after Sept. 1.
Who Is Affected?
The new law applies to Texas-licensed physicians and a variety of healthcare practitioners, not previously included in heightened requirements for noncompetes: dentists, nurses (including advanced practice nurses), and physician assistants.
Key Changes
The amendments impose several strict limitations on noncompete agreements with healthcare practitioners:
- Duration Limitation: Noncompete agreements are now limited to 12 months following termination.
- Geographic Restriction: The geographic scope is capped at a 5-mile radius from the location where the healthcare practitioner primarily practiced in place of a “reasonable” limitation that does not impose a greater restraint than is necessary to protect the business interest of the employer.
- Buyout Cap: Mandatory buyout clauses cannot exceed the practitioner’s total annual salary and wages at the time of termination, eliminating the previous “reasonable price” standard that often resulted in higher buyout amounts.
- “Good Cause” Protection: For physicians only, noncompete agreements become void and unenforceable if the physician is involuntarily terminated without “good cause.”
- Clear Language Requirement: All agreements must now have terms “clearly and conspicuously stated in writing.” Those terms should always include the legitimate business interest sought to be protected by the noncompete agreement.
Important Exceptions
Healthcare providers with ownership interests in a practice or entity remain exempt from these limitations. Physicians employed solely in managerial or administrative capacities may also be exempt from the heightened requirements. Critically, the law applies only to agreements entered into or renewed after Sept. 1, meaning existing agreements will continue to be governed by prior law unless renewed.
Immediate Action Items
Healthcare employers should immediately review all existing noncompete agreements to understand renewal timelines, including those related to evergreen agreements, and assess strategic options. They should also consider alternative protective measures such as non-solicitation and confidentiality agreements, and evaluate the potential impact on practice valuation.
Healthcare providers should take steps to understand their rights under existing agreements and consider the timing of any employment transitions. Providers should seek legal counsel before signing new agreements to ensure they understand the full scope of their rights and obligations under the new law.
