Texas Makes Changes to Requirements for Health Care Provider Noncompetes and Limits Confidentiality Agreements Related to Sexual Abuse

At a Glance

• SB 1318 changes the controlling standards for a physician covenant not to compete and adds a new set of limitations for a select group of other health care professionals.
• SB 835 makes void and unenforceable any provision of a nondisclosure or confidentiality agreement that prohibits disclosure of sexual abuse or facts related to an act of sexual abuse.

Noncompete Agreement Changes for Physicians and Other Health Care Professionals

Texas has long had a special set of provisions for physicians in the state statute governing covenants not to compete (Tex. Bus. & Com. Code §15.50, et seq). The governor recently signed a new law, SB 1318, that makes material changes to these provisions including new buyout requirements, time limitations, and geographic limitations. SB 1318 further expands these provisions to cover not only physicians but also some additional types of health care professionals.

The new law is not retrospective; therefore, these changes apply only to covenants not to compete entered into or renewed after the law’s September 1, 2025, effective date. Employers will need to be alert to the fact that a “renewal” may occur automatically under some agreements, which may trigger application of the new law without much recognition by the parties.

SB 1318 changes the controlling standards for a physician covenant not to compete and adds a new set of limitations for a select group of other health care professionals (dentists, certain nurses, and physician assistants). The guidelines for both groups are similar but there are some material differences between the new rules applicable to physicians and those applicable to the other health care practitioners covered by the new law.

Physicians

The new law takes the existing rules for physicians (individuals licensed to practice medicine by the Texas Medical Board), and changes the following:

• Buyout Requirement: The existing buyout requirement for physicians in the Texas noncompete statute uses a “reasonable price” test. The reasonable price test has been removed and replaced with a buyout amount that is the equivalent of one year of the physician’s annual salary and wages at the time of employment or contract termination.
• Time Limitations: SB 1318 adds a time limitation that requires that the post-employment covenant not to compete to be limited so that it extends for a period of no longer than one year after the date the contract or employment has been terminated.
• Geographic Limitations: Previously, geographic limitations on physician covenants not to compete were subject to a more flexible “reasonable geographic limit” standard. SB 1318 adds a new, more specific geographic limitation requirement that cannot exceed a five-mile radius from the location at which the physician primarily practiced before contract or employment termination, as specified in the covenant.

The part of the statute that creates this series of requirements for a physician’s covenant not to compete applies only to a covenant restricting the practice of medicine and specifically does not include managing or directing medical services in an administrative capacity for a medical practice.

The new law also provides that for physicians (not the covered health care practitioners) a covenant not to compete relating to the practice of medicine is void and unenforceable against a physician if the physician is involuntarily discharged from the contract or employment without good cause. For purposes of this subsection of the new law, "good cause" means a reasonable basis for discharge of a physician from 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.

Other Covered Health Care Practitioners

Under the new law, an enforceable covenant not to compete with anyone who qualifies as a covered "health care practitioner" (meaning a Texas state licensed dentist, professional or vocational nurse, or physician’s assistant) must have the following:

• Buyout Requirement: The covenant must provide for a buyout of the covenant by the health care practitioner in an amount that is not greater than the practitioner's total annual salary and wages at the time of termination of the practitioner's contract or employment.
• Time Limitations: The covenant must expire no later than one year after the date the contract or employment has been terminated.
• Geographic Limitations: The covenant must be limited to a geographical area that is no larger than a five-mile radius from the location where the health care practitioner primarily practiced before the contract or employment terminated, as specified in the covenant.

The “good cause” exception that applies to a physician’s covenant not to compete is not included in the section of the new law that applies to the covered health care practitioners.

For both physicians and the covered health care practitioners, the new law adds language to avoid any ambiguity about oral agreements or modifications, and requires that the covenant not to compete must have “terms and conditions that are clearly and conspicuously stated in writing.”

Confidentiality Agreement Changes Related to Sexual Abuse

Effective September 1, 2025, SB 835 adds a provision to the Civil Practice and Remedies Code¹ that makes void and unenforceable any provision of a nondisclosure or confidentiality agreement, such as a provision of an employment agreement, settlement agreement, or any other agreement, to the extent that it prohibits the disclosure of an act of sexual abuse or facts related to an act of sexual abuse.²

The new law focuses only on information regarding the acts of sexual abuse and expressly provides that nothing in it may be construed to prohibit a person, including a party,³ from agreeing to keep confidential any other provision of a settlement agreement, including the amount or payment terms of a settlement.⁴ The references to “sexual abuse” in the new law⁵ are references to conduct prohibited under various provisions of the Family Code related to child abuse⁶ and the Penal Code for indecency for a child, sexual assault, aggravated sexual assault, sexual performance by a child, sex trafficking and compelling prosecution.⁷

This change in Texas law applies to an agreement entered into before, on, or after the effective date of the Act. A person, including a party, may not enforce or attempt to enforce an agreement or a provision of an agreement covered by the Act, entered into before the effective date of this Act unless the person obtains a declaratory judgment under Chapter 37, Civil Practice and Remedies Code, that is final and not subject to appeal and declares that the agreement or provision is enforceable.⁸

The legislature did not pass this statute in a vacuum. A number of states and the federal government have enacted laws prohibiting confidentiality and other clauses in release or settlement agreements that prevent victims and others aware of sexual harassment from speaking to others about such conduct. The original idea of these “#MeToo” laws was to avoid serial harassers from securing confidentiality agreements from victims so that other potential victims are not warned about the conduct at issue. The statutes vary greatly regarding the type of clauses implicated and the type of conduct that cannot be kept confidential. The new Texas statute is much like the federal Speak Out Act that was enacted in 2022, limiting the enforcement of confidentiality or non-disparagement provisions entered into before a sexual harassment or assault dispute arises.⁹ The Texas statute is perhaps the most limited of these #MeToo statutes in that it prohibits only confidentiality clauses in employment release and settlement agreements related to incidents of abuse in situations of child abuse or certain criminal sexual offenses.

Employers should be careful to consider these new rules when drafting and enforcing non-compete agreements for physicians and other health professionals, and employment (including agreements with restrictive covenant clauses), release, and settlement agreements that could limit the confidentiality of sexual abuse incidents.