On June 20, 2025, Texas enacted Senate Bill 1318, ushering in significant reforms to healthcare non-compete agreements. This legislation, which takes effect on September 1, 2025, reshapes how non-compete agreements can restrict the activities of physicians, dentists, nurses, and physician assistants in Texas.
Texas SB 1318 Overview: What Healthcare Professionals Need to Know
This legislation represents part of a broader national trend toward narrowing or prohibiting non-compete agreements in healthcare, recognizing that excessive restrictions can harm both healthcare professionals and patient access to care.
Texas joins other states in acknowledging that while employers have legitimate business interests to protect, these must be balanced against the prevalence of overly restrictive non-compete clauses that limit the mobility of the healthcare workforce and inhibit competition.
New Texas Physician Non-Compete Requirements Under SB 1318
The new law builds upon existing requirements for physician non-compete agreements in Texas. To be enforceable, non-compete agreements with physicians and covered healthcare practitioners must now meet additional criteria that significantly limit their scope and impact, including:
- Geographic Limitations: Non-compete agreements can only restrict practice within a five-mile radius of where the physician or covered healthcare practitioner primarily practiced. This replaces the previous system where some agreements could restrict practice across entire metropolitan areas or every practice location where the physician practiced for his or her employer. It remains to be seen how this provision will be interpreted when a physician spends equal time between two or more locations.
- Buyout Protection: A buyout provision cannot exceed the practitioner's total annual salary and wages at the time of contract termination. While this is consistent with current industry standards and practices, a physician non-compete covenant must now clearly specify a buyout price, and no longer defer to an arbitrator to determine a buyout price.
- Time Restrictions: Non-compete periods are capped at one year from the date of contract or employment termination, preventing employers from imposing indefinite or excessive time restrictions.
- Clear Contract Language: All terms and conditions must be clearly and conspicuously stated in writing, creating additional legal grounds to challenge ambiguous non-compete provisions.
Non-Compete Protections Under SB 1318 Extend to Texas Dentists, Nurses, and PAs
Senate Bill 1318 specifically extends these non-compete requirements to other essential healthcare workers, recognizing their critical role in healthcare delivery:
- Dentists licensed by the State Board of Dental Examiners
- Nurses licensed under Chapter 301 of the Texas Occupations Code (both professional and vocational nurses)
- Physician Assistants licensed under Chapter 204 of the Texas Occupations Code
Texas Physician Non-Competes Now “Void and Unenforceable” When Involuntary Discharged Without Cause
One of the most significant new protections specifically benefits physicians who are terminated "without good cause." Under the new law, non-compete agreements become completely void and unenforceable if a physician licensed by the Texas Medical Board is involuntarily discharged without good cause.
The legislation defines "good cause" as a reasonable basis for discharge directly related to the physician's conduct, job performance, or employment record. This provision prevents employers from unfairly restricting a physician’s career when the employment contract was terminated through no fault of their own.
Unlike other requirements outlined in the bill, this requirement is strictly limited to physicians.
SB 1318 Impact on Existing Contracts
Senate Bill 1318 applies only to non-compete agreements with physicians and covered healthcare practitioners entered into or renewed on or after September 1, 2025. If you signed your current contract before this date, it remains governed by the previous law unless you renew or modify your agreement.
Texas Medical Director Non-Compete Exception (Administrative Roles)
The law includes an important clarification that the practice of medicine does not include "managing or directing medical services in an administrative capacity."
This means that physician executives and medical directors may not automatically receive the same legal protection from overly restrictive non-compete agreements if their roles are primarily administrative rather than clinical.
Guidance for Healthcare Professionals: Preparing for Texas SB 1318
As September 1, 2025, approaches, healthcare professionals should consider these steps:
- Contract Review: Even if your current agreement predates the new law, understanding how your existing terms compare to the new standards can inform your negotiation strategy for future opportunities.
- Documentation: Ensure you understand your current contract terms, particularly regarding patient lists, medical records access, and buyout provisions.
- Renewal Timing: If you have a contract renewal approaching, the timing relative to September 1, 2025, could significantly impact your negotiating position.
- Career Planning: The new protections may open opportunities for career moves that were previously unfeasible due to restrictive non-competes.
Guidance for Healthcare Employers: Compliance with SB 1318 Non-Compete Rules
While Senate Bill 1318 primarily benefits healthcare professionals, employers also need to understand how these changes will impact their operations and employment strategies.
The new law doesn't eliminate non-compete agreements – it establishes reasonable boundaries that can still protect legitimate business interests while ensuring fair treatment of healthcare professionals.
- Contract Revision Requirements: Employers must review and revise their standard employment agreements to comply with the new limitations for all contracts that are entered or renewed on or after September 1. Any physician, dentist, nurse, or physician assistant contract that includes non-compete provisions must be updated to reflect the five-mile radius restriction, one-year time limit, and salary-based buyout caps.
- Documentation and Compliance: Employers must ensure that physician termination decisions are well-documented and based on legitimate performance or conduct issues. The "good cause" requirement for involuntary discharge means that poorly documented terminations could result in unenforceable non-compete agreements.
- Administrative vs. Clinical Roles: Healthcare organizations should carefully evaluate which positions truly constitute "practice of medicine" versus administrative roles. The legislation's exception for administrative positions may allow different non-compete terms for physician executives and medical directors, but the distinction must be genuine and well-documented.
- Competitive Response: As the healthcare employment market becomes more fluid, employers may need to enhance their recruitment and retention strategies. This could include improved compensation models, better work-life balance offerings, and more attractive partnership tracks to remain competitive in attracting top talent.
Need Help with Texas SB 1318 Compliance? Contact Our Healthcare Attorneys
Whether you're a healthcare professional or employer, our experienced healthcare attorneys can help ensure you're fully prepared for the September 1, 2025, effective date.
- For Healthcare Employers: We can review and revise standard employment contracts to comply with SB 1318 requirements.
- For Physicians, Dentists, Nurses, and PAs: Hendershot Cowart attorneys can guide you through contract review and negotiation for employment agreements executed on or after September 1, 2025.
