The 2025 Texas legislative session brought sweeping reforms to healthcare employment contracts. Among the most significant is Senate Bill 1318, a law set to take effect on September 1, 2025, that reshapes how non-compete agreements can be used with physicians, dentists, nurses, and other licensed providers. At its core, the intent of non-competes has always been to prevent unfair competition—protecting practices that invest in building patient bases, referral networks, and training. They were never meant to punish the employee or prevent them from working altogether. In many ways, this new law brings Texas closer to that original purpose: protecting legitimate business interests while ensuring access to care and fairness for providers.

For years, non-competes have been a common feature in healthcare employment agreements. Yet in practice, many stretched far beyond what was reasonable—lasting years or covering geographic areas so broad they effectively sidelined providers from practicing in their own communities.

Whether those provisions were enforceable in court was always another matter. But here’s the problem many forget: enforceability isn’t the only risk. Even if a clause might ultimately fail in court, a new employer has to weigh whether hiring a provider with a restrictive covenant is worth the threat of a lawsuit for interference with contractual relationships. In reality, many organizations will not take that chance. That means even “overreaching” non-competes often kept providers from moving jobs.

SB 1318 changes that. Effective September 1, 2025, the law narrows the scope of enforceable non-competes for healthcare providers, bringing long-needed clarity to an area often marked by disputes and litigation.

Why This Law Matters

Healthcare is one of the most regulated industries in Texas, and employment contracts are no exception. Traditionally, physician non-compete clauses in Texas had to be:

• Ancillary to an enforceable agreement
• Reasonable in time and geography
• Designed to protect legitimate business interests, with a buyout option (for physicians only)

Those standards were left under a “reasonable standard” leaving the parties to engage in arguments for what was reasonable and did not extend to other licensed providers such as PAs, NPs, and RNs.

Now, SB 1318 makes its reach broader and its limits more concrete. The law applies to a wide category of “covered healthcare providers,” including:

• Physicians
• Dentists
• Physician Assistants
• Advanced Practice Registered Nurses (APRNs)
• Registered Nurses (RNs)
• Licensed Vocational Nurses (LVNs)

It does not apply to administrative-only roles with no direct patient care responsibilities. And importantly, it does not change the enforceability of non-solicitation provisions, which remain a separate tool for protecting patient relationships and staff stability.

Contracts signed before September 1, 2025, remain subject to prior law—unless they are renewed or amended after the effective date. For that reason, providers and employers alike need to review automatic renewal clauses carefully.

How SB 1318 Redefines Healthcare Non‑Competes

Starting September 1, 2025, non‑compete agreements with covered healthcare providers must meet stricter limits in order to be enforceable:

• Time Limit. Non‑competes may not exceed one year from the end of employment.
• Geographic Scope. Restrictions are capped at a five‑mile radius from the provider’s primary practice site. This is designed to prevent broad, statewide bans that effectively push providers out of their own communities.
• Mandatory Buyout Option for all providers not only physicians. A buyout provision must be included, capped at no more than the provider’s annual base salary or wages at the time of termination. This requirement applies across the board, not just for physicians.
• Clear and Conspicuous Wording. The non‑compete language conspicuous—so the provider is fully aware of the restriction before signing. While conspicuousness was already expected in physician agreements, SB 1318 reinforces this standard across covered practitioners.
• Termination Without Good Cause (Physicians Only) If a physician is terminated without good cause, the non‑compete becomes unenforceable. This safeguard reflects the law’s intent: to prevent misuse of restrictive covenants as a punitive tool.

Failure to meet these conditions makes a non‑compete vulnerable to being invalidated.

The Risks of Ignoring the New Law

At its core, the intent of non‑compete agreements has always been to protect against unfair competition—not to punish employees or keep them from practicing their profession. But when agreements go beyond that intent, they become both vulnerable to legal challenge and damaging to business reputation.

Under SB 1318, the risks of ignoring these new limits are clear:

• Regulatory Scrutiny

Non‑compliant agreements are more likely to be struck down, and courts will no longer give the benefit of the doubt to overly broad restrictions.

• Litigation Exposure

Even if a clause may ultimately be found unenforceable, a departing provider’s new employer must weigh the risk of being sued for interference with contractual relations. Most employers will not take that risk—so providers often remain trapped, and the relationship ends in costly disputes.

• Recruiting and Retention Challenges

In a competitive market for healthcare talent, outdated non‑competes can deter providers from joining your practice. Reasonable, legally sound terms are increasingly viewed as a sign of fairness and stability.

• Reputation Damage

Providers and staff talk. An organization seen as enforcing unreasonable restrictions risks losing not only candidates but also goodwill with patients, referral sources, and the community.

• Barriers to Sale or Partnership

In transactions, due diligence often uncovers problematic non‑competes. Buyers may lower valuations, demand corrective measures such as Corporate Integrity Agreements, or even walk away. What could have been addressed proactively now becomes a negotiation liability.

Ignoring SB 1318 doesn’t just risk invalid agreements—it can undermine the very purpose of having a non‑compete in the first place: protecting legitimate business interests.

Preparing for September 1

Healthcare entities and practices should use this window to:

• Identify agreements impacted by SB 1318
• Review renewal clauses that may bring old contracts under the new law
• Clarify “good cause” termination provisions in physician contracts
• Update templates to reflect new time, geographic, and buyout limits
• Consider complementary clauses such as confidentiality and non-solicitation

This doesn’t mean abandoning non-competes altogether. It means crafting agreements that are fair, defensible, and aligned with current law.

Final Thoughts

 The passage of SB 1318 is more than a legal technicality—it’s a reminder of what non‑competes were meant to be: a safeguard against unfair competition, not a tool to punish or sideline providers.

For healthcare professionals, it means greater clarity, mobility, and fairness in employment contracts. For employers, it’s a call to move away from boilerplate agreements and toward contracts that reflect both compliance and integrity.

The risk of ignoring the new law is high. But so is the opportunity: practices that embrace this change can strengthen recruitment, reduce litigation exposure, and improve long‑term business stability.

At Peters Law, we help healthcare providers and practice owners navigate these changes with a focus on clarity, compliance, and strategy. Whether you are reviewing a current contract, negotiating a new one, or preparing for a practice transition, we believe contracts should align with both the letter of the law and the values of your organization.

If you’re unsure whether your agreements are compliant—or you’d like to explore how these changes affect your business—Contact Us for a consultation.

You can read the complete Bill Text here https://capitol.texas.gov/tlodocs/89R/billtext/pdf/SB01318F.pdf#navpanes=0

This blog is for informational purposes only and does not constitute legal advice or create an attorney–client relationship.