Last Friday Governor Abbott signed SB 1318 into law, marking the biggest overhaul of Texas non-compete law in decades.
Effective September 1, SB 1318 amends the Texas Covenants Not to Compete Act (Tex. Bus. & Comm. Code § 15.50 et seq.) to further limit non-competes in the health care industry.
The previous version of Section 15.50 required only that non-compete restrictions be “reasonable,” leaving courts broad discretion to assess disputed clauses case-by-case. Some courts upheld state-wide, multi-year terms, while others voided smaller boundaries based on a wide range of factors.
The revised Section 15.50 and new Section 15.501 will now set explicit limits on scope, length, and buyout terms in non-competes for physicians and certain non-physician “health care practitioners.”
SB 1318 is a win for health care workers and a challenge for employers. With traditional non-competes significantly weakened, businesses will need to use other restrictive covenants and creative tools to protect patient relationships, proprietary information, and key staff.
Major Changes
- New Limits on Health Care Non-Competes: SB 1318 establishes specific limits on scope, length, and buyout provisions contained in qualifying non-competes. Under the amended Sections 15.50 and 15.501:
- Scope: Non-competes are limited to five miles from where the practitioner “primarily practiced.”
- Term: Non-competes may last no more than one year after termination of contract or employment.
- Buyout: Non-competes must include a buyout option capped at the individual’s total annual salary and wages as of the time of separation.
- Applies to Physicians, Dentists, Nurses, and PAs: SB 1318’s new restrictions will apply to both physicians and “health care professionals,” which Section 15.501 defines as dentists, nurses, and physician assistants.
- Not Apply to Admin/Director Services: Non-compete restrictions will apply only when a physician is employed for the “practice of medicine.” They will not apply to employment for “managing or directing medical services in an administrative capacity” like medical directorships or management service organizations.
- MD Non-Competes Void if Terminated w/o Good Cause: In addition to the above protections, physician non-competes will be void if a physician is terminated by employer without “good cause,” which is defined as a “reasonable basis” based on job performance, conduct, or employment record. This will not apply to dentist, nurse, or PA non-competes. And will not apply when employee is one who terminates.
- ‘Continuity of Care’ Protections Not Extended to Non-MDs: To facilitate continuity of care, the previous version of Section 15.50 prohibited non-competes from (i) denying departing physicians access to a list of patients seen within the past year or (ii) accessing their medical records with patient authorization. After some debate, SB 1318 ultimately did not extend these protections to dentists, nurses, or PAs.
When Do These Changes Apply?
SB 1318’s new restrictions only apply to agreements “entered into” or “renewed” on or after September 1, 2025. This likely includes agreements with “auto-renewal” clauses occurring after the effective date.
And while these changes won’t directly impact the enforceability of existing non-competes, Texas courts may consider SB 1318 when determining “reasonableness” under the prior standard.
What Should Employers Do Now?
Employers should evaluate their employment agreements with physicians, dentists, nurses, and PAs. New agreements should be structured to comply with SB 1318. And employers should consider amending existing agreements to ensure parity with new ones and avoid possible voiding by courts.
Employers should use or ‘beef up’ their existing non-solicitation and confidentiality clauses. Confidentiality clauses can prevent departing employees from using or disclosing sensitive business information, including pricing structures, operational protocols, clinical tools, and patients lists (for non-MDs). And non-solicitation provisions can restrict recruitment of key staff or patients.
Before terminating employees, employers should ensure “good cause” exists—or risk voiding the non-compete. Though “good cause” is defined by statute, employers can use language in their employment agreements, policies, and procedures to evidence their expectations for employees’ performance.
Broader non-competes can also still be used in a variety of other contexts to safeguard business interests. As stated, SB 1318’s requirements don’t apply to administrative, directorship, or management services. And both the old and new versions of Section 15.50 don’t apply to a physician’s “business ownership interest in a licensed hospital or ambulatory surgical center.” Texas courts have also often allowed expansive non-competes in asset or equity purchase agreements. Businesses should evaluate all arrangements and consider where additional non-compete protection might be needed.
Looking Ahead
SB 1318 is the latest in a broader national backlash against non-competes and other restrictions on workforce mobility. As September approaches, proactive contract management will be key for health care businesses seeking to remain compliant and competitive in the Texas health care market.
If you have questions about how SB 1318 affects your contracts, our health care law team at Nichols Weitzner Thomas is here to help.
