There is no doubt that a noncompete clause is a major consideration when evaluating an employed position. With the FTC’s ban on noncompetes being blocked by a federal judge, physicians, among others, are left to sift through various state laws and/or attempt to negotiate with their employer to reduce or eliminate a noncompete.
With a festering physician shortage in many states, state legislatures are taking aim at noncompete clauses in hopes of bolstering physician recruitment and providing better access to care for their citizens. Texas has taken a similar step in limiting the enforcement of noncompetes for physicians, advanced practice providers (NPs and PAs), dentists, and nurses. Senate Bill 1318 (SB1318) was signed by Governor Abbott on June 20, 2025, and will go into effect on September 1, 2025. Here’s what you need to know:
The Law will NOT be Retroactive
Unfortunately, for folks who are already employed and might be reading this blog, your noncompete will not change until or unless your contract renews. This poses a tricky issue for some, because there are contracts that “continue indefinitely,” so they don’t necessarily have a renewal term. At least for the moment, these contracts seem to be immune to SB1318’s changes, but perhaps there could be some developments forthcoming.
However, a lot of contracts will outline the initial term as being for a period of time (often anywhere from two to five years), which will eventually expire. After the initial term expires, the contract has an automatic renewal clause, or “evergreen clause,” that keeps the contract effective over time and often on a yearly basis. In these circumstances, when the contract is up for renewal after September 1, 2025, the employer may be forced to update the contract to reflect the terms below, or otherwise put the enforceability of the noncompete in jeopardy.
The “Reasonable Price” Buyout now has a more Tangible Definition
Before SB1318, the Texas legislature frustratingly left the noncompete buyout definition open to anyone’s interpretation with “reasonable price.” Formerly, it would be all too common to find a buyout provision that could be as high as two times the employee’s annual salary. As of September 1, 2025, the buyout provision can be “no[t] greater than the employee’s total annual salary and wages at the time of termination.” It is possible that even that definition could still have some broad construction, but it greatly limits the latitude for employers to suggest exorbitant sums are within the bounds of reasonableness.
While this change may not have profound impacts for all physicians, it almost seems to indicate that one could buy out of the noncompete for a relatively lower price if terminating early in the contract year, depending on the language of the noncompete clause. However, the most likely strategy for the majority of employers would be to have the annual salary or expected income of the employee listed as the buyout price (e.g. $300,000 or whatever represents the physician’s annual base salary and potentially any productivity bonuses, etc.).
The bill goes on to say that any managerial, directorship, or other administrative duties are not considered “practice of medicine.” Thus, nothing in this bill applies to those who are non-clinical and practice solely in administrative roles.
The Law Limits Enforceability to One Year Post-Termination
SB1318 provides that the noncompete clause must expire no later than one year after the contract or employment terminates. The trend for a lot of employers was to implement two-year noncompete clauses, which becomes a real headache if the employee is trying to stay close to that particular area. In a dual-income household, especially where both partners are physicians, taking a year off may be feasible to simply wait out a noncompete. Even in the higher-paid specialties, however, waiting for two years leads to financial stress and potential skill loss.
Employers will now have to abide by the new legal standard of a one-year post-termination noncompete. This should allow the physician and other healthcare professionals more options as they navigate dealing with a noncompete clause if they are hoping to remain in the area.
The Geographic Restriction must be Limited to Five Miles from the Primary Practice Site
A significant aspect of what made noncompete clauses so heinous is that they could effectively double or triple in size depending on how many different facilities or locations the employee had worked at. Especially where employers expect to have some flexibility with staffing, the employee could sign for a job thinking that they would be in a particular location, only to end up dividing time between several different hospital/clinic locations. The noncompete language was typically written in a way that would identify a single (say, 30-mile) radius, and then casually mention something like “from any facility where Physician provides services.” Suddenly, a physician in this case would be dealing with a ~90-mile noncompete if they are practicing from 3 separate locations!
SB1318 provides that the noncompete radius can be no larger than five miles from the physician’s primary practice location. This language perhaps has the largest impact on the greatest number of physicians in Texas. In higher metropolitan areas across the country, it was the norm to see something like a five- or ten-mile noncompete. But, even in places like Austin, TX, we would see fifteen miles or greater! Thus, this limitation will really set the stage for physicians to take back their mobility and have increased leverage in the markets they serve.
No Enforcement if the Employer Terminates Without Cause – Physicians only
The norm prior to SB1318 was that the noncompete would apply regardless of when the employment relationship ended or by whom. Attempts at negotiating this tended to be unsuccessful as well, with employer responses being akin to “the noncompete is universal to all employees and will not be changed.” Now, if an employer ends employment without cause, they can’t enforce the noncompete.
Unfortunately, however, SB1318 makes clear that this provision applies only to physicians, who are defined as “licensed by the Texas Medical Board.”
Consider Contacting an Attorney if You Work in Texas or are Considering Working in Texas
If you are considering an opportunity in Texas, your leverage after September 1, 2025, will increase substantially. If able, it may be ideal to hold off on signing anything until after September 1 to ensure that you are afforded the protections that SB1318 offers. If you are currently employed in Texas, consider a consultation so you can identify your negotiation leverage and the timeline to execute negotiations when your leverage changes. We would be happy to help! Reach out to us here if you’re a resident or fellow (or just graduated!), or reach out to us here if you’ve been practicing/currently employed.
