Texas Noncompete Law Hits Previously Grandfathered Physician Contracts

Texas noncompete law entered its second year on September 1, 2025, and the rules are now reaching employment agreements that were thought to be safe under the old regime.

New limits on restrictive covenants

The statute caps any post‑termination payment at the doctor’s total annual salary and wages. It also forces the restriction to end no later than one year after the employment stops and limits the geographic scope to a five‑mile radius around the primary practice site. Finally, the language must appear clearly in writing.

Before the change, the buyout amount was left to a “reasonable price” or an arbitrator’s discretion, and there was no set time frame or distance limit. The old rules relied on a case‑by‑case reasonableness test, and no written‑notice requirement existed.

A new provision makes a covenant void if the doctor is fired without “good cause,” meaning the discharge must relate directly to conduct, performance, or employment record.

Two carve‑outs are easy to miss. The law says managing medical services in an administrative role, such as a medical director agreement, falls outside the new limits. The exemption for ownership stakes in hospitals or ambulatory surgical centers remains unchanged.

Section 15.501 extends the salary cap, time, distance, and writing rules to dentists, nurses, and physician assistants, but those groups do not receive the good‑cause protection or the patient‑list rights that apply only to doctors.

Amended Section 15.52 makes the statutory criteria exclusive, preempting common‑law adjustments that courts previously used to narrow overly broad restrictions.

How health systems responded

Legal counsel warned groups with annually renewing agreements to lock in longer fixed terms before the effective date, preserving the older language. Some providers split the covenant into two separate pieces: one covering clinical practice that meets the new caps, and another covering administrative duties that stays under the general reasonableness standard.

That strategy aims to keep a court from striking the entire restriction if part of it runs afoul of the new caps.

Unsettled issues remain.