Texas has adopted a significant change that affects how non-compete agreements work across the healthcare field. With the passage of Senate Bill 1318 (SB 1318), the rules governing physician non-competes became stricter. For the first time, similar protections now apply to other healthcare professionals, including dentists, nurses, and physician assistants.
This new law impacts how healthcare employers draft, renew, and enforce contracts. Many organizations are reassessing their agreements because these changes affect hiring, retention, and compliance. Our healthcare liability lawyers at MehaffyWeber continue to monitor how SB 1318 is shaping workforce planning for Texas healthcare entities.
A Simpler, More Uniform System for Healthcare Restrictive Covenants
Texas lawmakers have long tried to balance two competing goals of protecting healthcare employers that invest in building patient bases and allowing healthcare workers to change jobs without unreasonable restrictions. The passage of SB 1318 shifts that balance by creating clearer, stricter rules about what healthcare non-competes must look like.
The law makes two significant changes: amending Section 15.50 of the Texas Business and Commerce Code for physicians and creating a new section for dentists, nurses, and physician assistants. The rules are now much more defined.
What Is New for Physicians?
SB 1318 keeps the basic idea of physician non-competes but gives them much stricter boundaries. Here is what employers and physicians need to know.
The Buyout Cap
Physician non-competes must include a buyout option. Under the new law, the buyout cannot exceed the physician’s total annual salary and wages at the time of termination. Previously, the buyout was based on a reasonable price, which often led to disputes or arbitration. The new cap gives physicians a clear, predictable number.
Mandatory Geographic and Time Limits
A physician non-compete is enforceable only if it lasts no more than one year after employment ends and covers no more than a five-mile radius from the physician’s primary practice location. These limits apply statewide. A five-mile radius in Houston or Dallas is very different from a five-mile radius in a rural area, but that five-mile cap is now fixed and cannot be expanded based on specialty or market conditions.
Clear and Conspicuous Contract Language
SB 1318 requires physician non-competes to be clearly and conspicuously stated in the agreement. Employers should avoid burying non-compete terms in dense or technical sections of the contract.
The Good Cause Termination Defense
Under SB 1318, a physician’s non-compete becomes void if the physician is fired without good cause. Good cause must involve a reasonable, documented reason tied to performance, conduct, or employment record.
This means that if a physician is laid off due to restructuring, budget cuts, or clinic closures, the non-compete may disappear automatically. Employers must maintain detailed, consistent documentation of performance issues to keep a non-compete enforceable. This is one of the most significant changes in the law.
Expanding Scope to Dentists, Nurses, and Physician Assistants
SB 1318 introduces Section 15.501 that applies to dentists, licensed professional nurses, licensed vocational nurses, and physician assistants. Before this law, only general contract principles governed non-competes for these professionals, giving employers far more flexibility than they have under SB 1318. Now, a valid non-compete for these healthcare practitioners must include:
- A buyout option capped at the practitioner’s total annual salary and wages
- A time limit of no more than one year
- A geographic limit of no more than five miles from the practitioner’s primary practice location
- Clear, easy-to-understand contract language
This provides mid-level providers with protections similar to those of physicians and prevents overly broad restrictions that could limit mobility or patient access to care.
The Administrative Exception
SB 1318 also clarifies that the practice of medicine does not include administrative or managerial work. This means that physicians who work mainly in administrative roles, like medical directors, chief medical officers, or department chairs, may still be subject to traditional commercial non-compete rules, which are more flexible. In other words, the strict new limits apply to clinical work, not leadership or business-side roles.
Strategic Implications for Healthcare Employers
SB 1318 does not just change contract language. It changes how healthcare organizations should approach hiring, retention, and risk management processes. To remain compliant, employers will need to reassess their agreements, internal processes, and recordkeeping practices. Key steps include:
Reviewing Existing Contracts
Healthcare employers should begin with a meticulous review of all current agreements, especially those that may have renewed after the law took effect. This review should include:
- Physician employment agreements
- Dentist, nurse, and physician assistant contracts
- Contracts with automatic renewal (evergreen) clauses
Older contracts are not automatically invalidated, but any agreement renewed or amended after the law took effect must comply with the new requirements. Because many healthcare systems use standardized templates, this is an ideal time to update contract language across the organization.
Redefining the Physician or Practitioner’s Primary Practice Location
The five-mile rule only works if the agreement clearly names a primary practice location. This can be tricky with rotating clinic schedules, practitioners covering multiple sites, telemedicine or hybrid arrangements, and providers splitting time between different care settings.
Employers may need to update job descriptions to define the primary practice location clearly, add contract language explaining how the primary location is chosen, and address how to handle the location if schedules change. Clear definitions today can prevent disputes tomorrow.
Updating Termination Procedures
SB 1318 significantly raises the stakes for physician terminations. If a physician is fired without good cause, their non-compete becomes automatically void. Because of this, employers must:
- Keep detailed performance records
- Maintain written coaching, warnings, or corrective-action notes
- Use consistent evaluation processes
- Coordinate with HR and legal counsel before terminating a physician
A lack of strong documentation can unintentionally jeopardize the enforceability of a physician’s non-compete, leaving the organization without post-employment protection.
MehaffyWeber Can Help Your Organization Stay Compliant
SB 1318 represents one of the most significant updates to Texas healthcare employment law in years. It tightens the rules for physicians and extends those same protections to dentists, nurses, and physician assistants. Because the law is now in effect, healthcare groups should ensure all new and renewed agreements comply with the updated requirements.
If you need help reviewing your contracts or understanding how these changes affect your healthcare organization, our healthcare liability lawyers at MehaffyWeber are here to assist you. We help healthcare employers stay compliant, minimize risk, and build agreements that protect their business interests and their valued providers.