A significant shift is coming to the Texas healthcare landscape. On June 20, 2025, Governor Greg Abbott signed Senate Bill 1318 into law, establishing strict new boundaries for non-compete agreements affecting a wide range of medical practitioners. For physicians, dentists, nurses, and physician assistants, the rules of professional mobility are about to change.

Effective for all agreements entered into or renewed on or after September 1, 2025, SB 1318 introduces critical limitations that both healthcare employers and practitioners must understand.

Key Provisions of SB 1318 at a Glance

The new law imposes clear and firm restrictions on four key elements of a non-compete clause:

1. Geographic Scope: The restricted area cannot extend beyond a five-mile radius from the practitioner's primary practice site. This replaces vague, multi-county or city-wide restrictions with a precise, localized boundary.

2. Time Limit: The duration of the non-compete is capped at a maximum of one year following the termination of employment.

3. Financial Buyout Cap: If the agreement includes a buyout clause to circumvent the non-compete, the cost cannot exceed the practitioner's total annual compensation at the time of termination. This price must be explicitly stated in the original contract.

4. Clarity and Conspicuousness: All non-compete terms must be presented in a clear, unambiguous manner within the written agreement.

A Critical Distinction for Physicians

While the above rules apply broadly, physicians receive an additional, powerful layer of protection. If a physician is involuntarily discharged without "good cause," the entire non-compete agreement is rendered void and unenforceable. This places a heavy burden on healthcare organizations to meticulously document performance and conduct issues to support any termination decision.

Who is Covered by This Reform?

SB 1318 casts a wide net, offering new protections for:

• Physicians (licensed by the Texas Medical Board)

• Dentists (licensed by the Texas State Board of Dental Examiners)

• Registered Nurses and Vocational Nurses (licensed under Chapter 301)

• Physician Assistants (licensed under Chapter 204)

It is important to note that the "good cause" voidance rule applies only to physicians.

The Administrative Role Exception

The law carves out an important exception for administrative duties. The definition of the "practice of medicine" specifically excludes managing or directing medical services in a primarily administrative capacity. This means executives, medical directors, and other leaders whose roles are substantially administrative may still be subject to different, and potentially broader, non-compete terms.

What About Existing Contracts?

Agreements signed before September 1, 2025, will generally remain governed by the prior, more permissive Texas law. However, the moment a contract is renewed or materially modified after the effective date, it falls under the stringent new requirements of SB 1318.

Actionable Steps for Healthcare Employers

With the September 1st deadline approaching, proactive measures are essential to ensure compliance and protect your practice's interests.

• Conduct a Contract Audit: Immediately review all standard employment and independent contractor templates. Ensure geographic, duration, and buyout clauses align with the new five-mile, one-year, and compensation-cap standards.

• Strengthen Documentation Practices: For physician employees, implement rigorous and consistent documentation of any performance or behavioral issues. Establishing a clear "good cause" paper trail is now more critical than ever.

• Clarify Role Definitions: Carefully distinguish between clinical and administrative roles. For employees with hybrid duties, ensure their job descriptions and contracts accurately reflect their primary responsibilities, as this will determine which set of rules applies.

Navigating the New Landscape

The passage of SB 1318 marks a pivotal moment for Texas healthcare, creating a more balanced playing field for practitioners while introducing new complexities for employers. Navigating these changes requires careful legal guidance.

If you have questions about how this reform impacts your existing agreements, your practice's hiring strategy, or your rights as a medical professional, our firm is here to help. Contact us today to discuss your specific situation.

This post is for general information and is not legal advice. For engagement terms, contact Huynh & Huynh, PLLC.