States Continue to Limit Restrictive Covenants for Health Care Professionals

Following a trend in recent years, state legislatures continue to ban or curtail the use of non-compete provisions and other restrictive covenants in employment agreements with physicians and other healthcare providers. The first half of 2025 has seen a flurry of activity in this area. On the heels of Arkansas’ move to ban physician non-compete agreements, seven other states have recently passed or amended similar legislation.

Colorado

In June, Colorado enacted legislation, effective August 6, 2025, that restricts the use of non-competes and customer non-solicits with certain health care providers, regardless of whether they satisfy the state’s highly compensated worker threshold. In 2022, Colorado carved out an exemption to its broad prohibition on non-competition agreements for highly compensated workers. As of 2025, the minimum salary threshold for highly compensated workers is $127,091 annually. To qualify for the exemption, the covenant not to compete must be for the protection of trade secrets and reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets. Additionally, the previous law carved out an exception to the ban on customer non-solicitation agreements for individuals who earn the equivalent to or greater than 60% of the threshold for highly compensated workers. 

Now, non-compete and non-solicitation covenants that restrict the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry are void in Colorado, regardless of whether the individual satisfied the previous requirements for highly compensated workers. Also, agreements may not prevent or materially restrict a health care provider from disclosing the following information to a patient they were providing treatment or consultation to before the health care provider’s departure from a medical or dental practice:

• That the health care provider is continuing to practice medicine;
• The health care provider’s new professional contact information; or
• That the patient has the right to choose a health care provider. 

Finally, the Act now permits covenants not to compete for individuals that own a minority share in a business. Previously, the Act only permitted non-compete provisions related to the purchase and sale of a business or the assets of a business. Covenants that restrict minority owners are now permissible when the minority owner received their share in the business as equity compensation or in connection with services rendered. However, the law sets forth a specific calculation to determine whether the covenant is allowed, as the covenant’s duration in years should not exceed:

• a number calculated by the total consideration received by the individual from the sale,
• divided by the average annualized cash compensation received by the individual from the business, including income received on account of the individual’s ownership interest during the preceding two years or during the period of time that the individual was affiliated with the business, whichever period is shorter. 

Illinois

On February 7, 2025, Illinois enacted a new amendment to the Illinois Freedom to Work Act, further restricting the use of non-compete and non-solicitation agreements with licensed mental health professionals if they are providing certain services to specific patients.

This new amendment expands on a prior amendment, which went into effect January 1, 2025, that prohibited the enforcement of non-compete and non-solicitation agreements with respect to the provision of mental health services to veterans and first responders by licensed mental health professionals if enforcing the agreement would likely result in increased costs or difficulty for any veteran or first responder seeking mental health services. While the prior amendment defined “first responders” as emergency medical services personnel, firefighters, and law enforcement officers, the new amendment expands the definition to also include “any person currently or formerly employed” in those capacities (emphasis added). 

Indiana

On May 6, 2025, Indiana Governor Mike Braun signed into law Senate Bill 475, banning non-compete agreements between a physician and a hospital, a parent company of a hospital, an affiliated manager of a hospital, or a hospital system.  The law applies to agreements entered into on or after July 1, 2025 and amends portions of Indiana Code Section 25-22.5 and expands on Indiana’s prior legislation restricting physician non-compete agreements. 

Indiana previously passed legislation in 2020 requiring physician non-compete agreements to include, among other things, language related to certain information provided to physicians’ patients, access to the physicians’ patient’s medical records, and the option to purchase a release from the noncompete agreement at a reasonable price.  In 2023, the state continued to target physician non-competes by prohibiting employers from entering into non-compete agreements with “primary care physicians” (defined as physicians practicing in either family medicine, general pediatric medicine, or internal medicine) and banned physician non-compete agreements if the employer terminates the physician’s employment without cause, the physician terminates their employment for cause, or the physician’s employment contract expires and the physician and employer have fulfilled the obligations of the contract. 

Now, Indiana’s law goes even further by banning non-compete agreements between a physician and a hospital, a parent company of a hospital, an affiliated manager of a hospital, or a hospital system, effective July 1, 2025. The amendment defines a “noncompete agreement” as a contractual provision restricting or penalizing a physician’s ability to practice medicine in any geographic area, for any period of time, after the physician’s employment relationship with one of the foregoing entities has ended.  Under the law, certain provisions imposing financial penalties or repayment obligations, requiring physicians to obtain employer consent or submit to equitable relief, or otherwise imposing restrictions that have the effect of deterring the physician’s practice of medicine with a new employer may also be considered a “noncompete agreement.”

Notably, the statute explicitly does not apply to: a non-disclosure agreement protecting confidential business information or trade secrets; non-solicitation agreements prohibiting solicitation of current employees for a period of one year or less (so long as the non-solicitation agreement does not restrict patient interactions, patient referrals, clinical collaboration, or the physician’s professional relationships); and an agreement made in the connection with the bona fide sale of a business entity where the physician owns more than 50% of the business entity at the time of the sale.

Montana 

Montana recently enacted legislation banning post-employment non-compete provisions and patient non-solicitation provisions in contractual agreements for all physicians. House Bill 620, which amends M.C.A. § 28-2-724, expands the reach of the statute and applies to contracts made or renewed after January 1, 2026. 

The statute applies to a contract for employment, partnership, or other professional relationship, prohibiting contractual provisions that geographically restrict the area in which a provider can provide services; that restrict a right of treatment, advisement, or consultation with current patients of the employer; or that restrict a right of solicitation of current patients of the employer. 

Whereas the former statute applied only to a psychiatrist or addiction medicine physicians, the newly enacted amendment will apply to all licensed physicians.  The statute will continue to apply to other licensed health care professionals, including psychologists, social workers, professional counselors, addiction counselors, marriage and family therapists, and behavioral health peer support specialists.

The statutory ban on restrictive covenants explicitly does not apply to a contract for the purchase and sale of a practice or to a provision governing the repayment of money advanced to a physician in the form of hiring and retention incentives, such as bona fide loans, relocation costs, signing bonuses, education expenses, and tuition reimbursement.  The amendment takes effect on January 1, 2026.  

Oregon

Declaring an emergency with respect to public health and safety, Oregon passed a law that went into effect immediately, on June 9, 2025. Oregon Senate Bill 951 imposes new limitations on the use of restrictive covenants with physicians, physician assistants, and nurse practitioners. The law amends ORS 653.295, which contains a general prohibition on non-competition agreements and sets forth specific conditions under which non-competition agreements are enforceable. Specifically, non-competition agreements are generally void and unenforceable unless the employer could satisfy certain conditions:

• The employee was informed two weeks before their start date that the agreement was required or the agreement was later entered into based on a bona fide advancement of the employee by the employer;
• The employer has a protectable interest, including that the employee has access to trade secrets, the employee has access to competitively sensitive business information, or that the employee is employed as on-air talent in the business of broadcasting;
• The employer provides a signed written copy of the agreement to the employee within 30 days of termination; and
• The total amount of the employee’s annual gross salary and commissions at the time of termination exceeds an earnings threshold, currently $116,427 annually.
• The term of the noncompetition agreement could not exceed 12 months from the date of termination. 

The new law provides a carveout to ORS 653.295 for the practice of medicine and the practice of nursing. Non-competition agreements between medical licensees and a person (defined to include individuals, trusts, estates, partnerships, corporations, etc.), management services organization, hospital, or hospital affiliated clinic are now void and unenforceable. The law defines a medical licensee as an individual who has a license as a physician or a license as a physician associate from the Oregon Medical Board or who has a license as a nurse practitioner from the Oregon State Board of Nursing.

However, the prohibition on noncompetition agreements does not apply to certain situations, including the following:

• The medical licensee is a shareholder or member of the other person (defined above) and
  • The medical licensee owns 10% or more of the entire ownership interest; or
  • The medical licensee owns less than 10% of the entire ownership interest and has not sold or transferred the ownership interest.
• The medical entity provides the medical licensee with documentation of its protectable interest and the noncompetition agreement is only valid for three years after the date the medical licensee was hired.
• The medical licensee is a shareholder or member of a professional medical entity and has a noncompetition agreement with that entity, but the entity:
  • Does not have a contract for management services with a management services organization; or
  • Has a contract for management services with an organization that qualifies for an exemption under the Act.
• The medical licensee does not engage directly in providing medical services, health care services, or clinical care. 

Texas

The latest state to adopt this trend is Texas. On June 20, 2025, Texas enacted legislation affecting how non-compete agreements can be used with physicians and, for the first time, extends similar restrictions to dentists, professional or vocational nurses, and physician assistants. The new law has an effective date of September 1, 2025 and applies to agreements entered into or renewed after that date. 

As applied to physicians, non-compete agreements in Texas must now include a buyout option capped at the physician’s total annual salary and wages at the time of termination (replacing the prior “reasonable price” buyout requirement). A geographic restricted area in an agreement cannot exceed a five-mile radius from the physician’s primary practice location. Any non-compete provision is temporally limited to one year after the end of employment. The new law further states that physicians must retain access to patient lists and medical records (with patient authorization) for continuity of care. Physicians may also continue treating patients with acute illnesses even after leaving employment. If a physician is terminated without good cause, the non-compete becomes void and unenforceable. The law defines good cause as “a reasonable basis for discharge . . . directly related to the physician's conduct, including the physician's conduct on the job or otherwise, job performance, and contract or employment record.”

As applied to dentists, professional or vocational nurses, and physician assistants, non-compete agreements in Texas must contain a buyout, the amount of which cannot exceed the practitioner’s total annual salary and wages at the time of termination. The five-mile radius geographic limitation and the one-year temporal limitation also apply to dentists, professional or vocational nurses, and physician assistants.

The bill clarifies that these new rules override any conflicting common law or other statutory provisions regarding non-compete agreements in healthcare. These changes apply only to agreements entered into or renewed on or after September 1, 2025. Existing agreements remain governed by the laws in effect at the time they were signed or last renewed.

Utah

On March 26, 2025, Utah Governor Spencer Cox signed into law Senate Bill 288, now Utah Code 58-89-101, addressing health care staffing, primarily involving temporary workers. The law, which took effect on May 7, 2025, establishes a registration program for health care services platforms. A health care services platform is a “program, system, or application” through which a health care worker may accept a shift as an independent contractor. A health care worker is defined broadly to include not only physicians and nurses, but also any individuals that provide or deliver a health care service or assist in providing a service, even if no license or certification is required. 

The new law prohibits health care platforms from requiring health care workers to enter into non-complete agreements. Additionally, platforms may not accept fees, payments, or benefits as compensation for a health care worker’s accepting an offer of employment. Lastly, platforms may not restrict health care workers from finding or accepting a shift using another platform or finding or accepting a shift or employment with a health care provider or facility. 

Key Takeaways:

• Health care industry employers with operations in these states should audit their current workforce for compliance with the new laws.
• Employers should consult counsel to review and revise restrictive covenants, as necessary, for compliance and guidance on enforcement of restrictive covenants.