On June 20, 2025, Governor Greg Abbott signed Senate Bill 1318 (“SB 1318”) into law, enacting significant changes to the enforceability of non-compete agreements for healthcare practitioners in Texas.

Currently, Section 15.50(b) of the Texas Business and Commerce Code governs non-compete agreements involving physicians. Among other requirements, it mandates that such agreements include a buyout option at a “reasonable price” or a price set through arbitration.

Effective September 1, 2025 (the “Effective Date”), SB 1318 amends Section 15.50 to establish new, bright-line limitations for physician non-competes. Additionally, SB 1318 creates a new Section 15.501, which, for the first time, extends similar non-compete restrictions to dentists, professional and vocational nurses, and physician assistants (“PAs”).

SB 1318’s changes will apply to any non-compete agreement entered into or renewed on or after the Effective Date. As a result, healthcare employers have a limited window to review and update their agreements to ensure compliance with the new law. This alert summarizes the key provisions of SB 1318 and outlines the practical implications for healthcare employers and practitioners across Texas.

Key Legislative Changes and Takeaways

• Expansion to Additional Practitioners: Senate Bill 1318 introduces a new Section 15.501 to the Texas Business and Commerce Code, extending the scope of non-compete restrictions beyond physicians to now include dentists, nurses, and PAs. These practitioners are now subject to the same buy-out, duration, and geographic limitations as physicians.
• Applicable Dates: The new requirements under SB 1318 apply to non-compete agreements that are entered into or renewed on or after the Effective Date. Agreements executed or last renewed before this date remain governed by the prior law.
• One-Year Compensation Cap: SB 1318 establishes a clear cap on buyout amounts, limiting the buyout price to no more than the equivalent of one year of the practitioner’s compensation at the time of separation. The previous standard of a “reasonable price” or arbitration to determine the buyout amount is eliminated.
• One-Year Duration: The maximum duration for a covered practitioner’s non-compete is one year following the end of employment or engagement.
• 5-Mile Radius Maximum: The geographic scope may not exceed a five-mile radius from the primary practice site.
• Good Cause Requirements for Physicians: A non-compete agreement with a physician is void if the physician is terminated without “good cause,” which is defined as “a reasonable basis for discharge of a physician from contract or employment that is directly related to the physician’s conduct, including the physician’s conduct on the job or otherwise, job performance, and contract or employment record.”
• Clarity Requirement: Clear, conspicuous written terms are mandatory; vague or oral covenants will not survive scrutiny.
• Administrative Exclusion: For purposes of enforcing physician non-competes, managing or directing medical services in an administrative capacity does not constitute the “practice of medicine.” As a result, physicians serving solely in administrative roles are not subject to the statute’s non-compete limitations, allowing for greater contractual flexibility in these contexts.

Compliance Checklist and Recommendations

For Healthcare Employers:

1. Review existing agreements to conduct a comprehensive review of all current employment agreements, practitioner handbooks, and onboarding materials, and determine whether it is advantageous to strategically renew or extend certain agreements in advance of the Effective Date to preserve existing non-compete provisions.
2. Ensure compliance of agreements entered into on or after the Effective Date, including the one-year duration maximum, five-mile geographic restriction, capped buy-out formula, and clear-writing requirement.
3. Clearly define “good cause” standards in employment agreements, including objective criteria such as performance metrics, policy violations, or documented misconduct as well as appropriate subjective grounds such as insubordination, and/or lack of professionalism.
4. Maintain detailed personnel records for practitioners in the event that the cause of a future termination is challenged.
5. Train HR and recruiting teams on the new statutory caps to ensure all personnel involved in hiring and contract negotiations are familiar with the new statutory requirements and limitations.
6. Accurately log the designated primary practice location in each contract to minimize the risk of future territorial disputes, including where possible the address of the primary practice location, applicable site-specific responsibilities, and provisions for potential relocation or reassignment.
7. Monitor legal developments and stay informed regarding judicial decisions that may clarify ambiguous issues, such as the definition of a “primary practice location” for practitioners who work at multiple sites or via telemedicine.

For Covered Practitioners:

1. Evaluate current and future contracts to determine how the new law will affect them; when renewing a contract or negotiating a new one, the timing of SB 1318’s implementation may influence their bargaining position.
2. Maintain records with respect to primary practice location(s) including locations worked, hours worked, patient visits, and revenue generated at each location; this information can be crucial in establishing the “primary practice location” if a dispute arises regarding the enforcement of a non-compete clause.
3. Take advantage of enhanced mobility resulting from the new limits on geographic scope and duration of non-compete agreements, which in turn enhances a practitioner’s leverage in contract negotiations and presents increased freedom to pursue new opportunities.

Conclusion

The passage of SB 1318 is sure to be a polarizing subject. For healthcare employers, it is a troublesome development because it simultaneously reduces leverage for retaining talent, increases the risk of losing patients and market share, shaves down financial protections, and introduces new administrative burden and legal risks. At the same time, covered practitioners negotiating agreements beginning on or after the Effective Date will benefit from clearer statutory protections and enhanced mobility.

With the Effective Date of SB 1318 quickly approaching, Gray Reed’s Healthcare and Labor & Employment teams are available to audit existing agreements, draft compliant covenants, and guide employers and practitioners through this new regulatory terrain. Contact our attorneys for assistance with developing strategies tailored to your specific operational and or legal needs.

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