A year in, Texas' noncompete law is reaching physician contracts that looked grandfathered

Texas physicians who signed employment agreements before Sept. 1, 2025, were left alone by the state's new noncompete law. That protection lasts only until the contract renews, and a year later, most annual contracts have.

Senate Bill 1318 took effect Sept. 1, 2025, capping physician noncompetes at one year, five miles and one year of salary. But the transition language in the bill text applies the new rules only to a covenant "entered into or renewed on or after" that date, leaving earlier agreements under prior law. As Bracewell noted in its analysis, the statute never defines what counts as a renewal.

That gap is the practical story of the law's first year. Physician employment agreements commonly run on annual terms with automatic renewal, and they get amended when a physician takes a raise, changes title or moves to a different site. Each of those events is a plausible trigger. Neither the employer nor the physician necessarily notices.

What changed

For physicians licensed by the Texas Medical Board, an enforceable noncompete signed or renewed after Sept. 1, 2025, must now do four things. It must cap the buyout at the physician's total annual salary and wages at termination. It must expire no later than one year after the contract or employment ends. It must limit the restricted area to a five-mile radius from where the physician primarily practiced. And its terms must be clearly and conspicuously stated in writing.

Each replaces something looser. The old buyout standard was a "reasonable price" or an amount set by an arbitrator. There was no maximum duration and no fixed radius, only a case-by-case reasonableness test. There was no writing requirement at all.

The law also added a provision with no predecessor in Texas: a physician noncompete is void and unenforceable if the physician is involuntarily discharged without good cause, defined as a reasonable basis for discharge directly related to the physician's conduct, job performance or employment record.

Two carve-outs matter and are widely missed. New Section 15.50(b-1) says the practice of medicine does not include managing or directing medical services in an administrative capacity, which means a medical director agreement falls outside the new physician rules and back under the general reasonableness standard. And the existing exemption for a physician's ownership interest in a licensed hospital or ambulatory surgical center is unchanged.

Separately, new Section 15.501 extends the one-year, five-mile, buyout-cap and writing requirements to dentists, professional and vocational nurses licensed under Chapter 301 and physician assistants licensed under Chapter 204. Those practitioners do not get the good-cause protection, the patient-list and medical-records access provisions, or the right to continue treating a patient through an acute illness. Those remain physician-only.

Finally, amended Section 15.52 makes the statutory criteria exclusive and preempts other law, including common law. Texas courts had long reformed overly broad noncompetes by rewriting them to something the judge considered reasonable. That escape hatch is narrower now.

What employers did about it

Practices and systems were not caught off guard. In the run-up to the effective date, McGuireWoods advised clients with annually renewing contracts to consider extending them to a longer fixed term before Sept. 1, 2025, specifically to keep the older terms grandfathered.

The same analysis laid out the other move now showing up in contract templates: splitting the restrictive covenant in two. One piece covers clinical practice and complies with the SB 1318 limits. A separate piece covers administrative services, equity ownership and other non-clinical activity and stays under the general standard. The goal is to keep a court from voiding the whole covenant.

What is still unsettled

The law left several questions that a physician negotiating today should assume are live.

The buyout cap is tied to total annual salary and wages at termination, but the statute does not say how to calculate it for a physician employed less than a year or paid on a collections or productivity model, according to the McGuireWoods analysis. That is not a small share of the market.

Buyout disputes also used to land in arbitration by default under the old statutory language. With the arbitrator provision gone, those fights may end up in court unless the agreement has its own arbitration clause.

And SB 1318 uses the term "covenant not to compete" without saying whether it reaches nonsolicitation covenants, which Texas courts have previously treated as covered by the same statute. The firm said it expects litigation on that point.

What to do now

Pull the agreement and find the renewal date. If it renewed after Sept. 1, 2025, or was amended for a raise or a title change, assume the new limits apply and read the covenant against the four requirements.

Confirm that the contract identifies a primary practice location in writing. The five-mile radius runs from that location, and a physician who works at several sites has a real dispute waiting if the document is silent.

Calculate the buyout number. It is now knowable in advance rather than something an arbitrator decides after the fact, which changes what an exit actually costs.

Look at what sits next to the noncompete. If the clinical restriction got narrower, the nonsolicit, the training repayment provision and the deferred compensation clawback are where the leverage moved.

The Texas Legislature does not meet in regular session again until January 2027, so the definition of "renewal" is not getting a statutory fix before then. Until it does, or until a court supplies one, the answer sits in each physician's own contract.