Link to Takeaways Takeaways
- SB 1318 would expand non-compete limitations on physicians, dentists, nurses, and physician assistants.
- Restrictive covenants would be limited to one year in duration and a five-mile geographic scope.
- If enacted, the law would take effect September 1, 2025, and apply only to new or renewed agreements, prompting employers to review and revise their current contracts.
A significant proposal that would limit non-compete agreements for physicians, dentists, nurses, and physician assistants in Texas is headed to Governor Abbott’s desk. Senate Bill 1318 (SB 1318), authored by Senator Charles Schwertner seeks to balance employer protections with workforce mobility and patient care.
For healthcare employers, the legislation will require substantial changes to new non-compete contracts in Texas.
Link to What is Senate Bill 1318? What is Senate Bill 1318?
SB 1318 proposes revisions to the Texas Covenants Not to Compete Act (TEX. BUS. & COMM. CODE § 15.50, et seq.) that limit the scope of restrictive covenants in healthcare employment contracts.
This bill is particularly relevant to:
- Physicians;
- Dentists;
- Nurses;
- Physician assistants; and
- Healthcare organizations that employ healthcare practitioners.
Link to Key Provisions of SB 1318 Key Provisions of SB 1318
Here is a breakdown of the most important changes from the current version of SB 1318.
Link to 1. Non-Compete Limits for “Health Care Practitioners” 1. Non-Compete Limits for “Health Care Practitioners”
The bill adds specific protections for dentists, nurses, and physician assistants, who are defined as “health care practitioners.” The current Act only has specific provisions for physicians practicing medicine, and the bill clarifies that the Act will not apply to physicians who manage or direct medical services in an administrative capacity.
The terms and conditions of non-competes for physicians and health care practitioners will need to be “clearly and conspicuously stated” going forward.
Link to 2. Buyout Clause Requirement 2. Buyout Clause Requirement
As with physicians, non-competes for “health care practitioners” would need a buyout option for the restrictive covenant. The buyout cost for physicians, dentists, and health care practitioners must not exceed the individual’s “total annual salary and wages at the time of termination.”
Link to 3. One-Year Time Limit 3. One-Year Time Limit
The restriction period of any non-compete clause for physicians, dentists, and health care practitioners cannot exceed one year after employment or contract termination.
Link to 4. Five-Mile Radius 4. Five-Mile Radius
The geographical restriction must be limited to five miles from the location where the healthcare provider primarily practices.
Link to 5. Protections for Physicians Who are Discharged Without “Good Cause” 5. Protections for Physicians Who are Discharged Without “Good Cause”
A non-compete clause with a physician will be void and enforceable if the physician is discharged “without good cause.” The bill defines “good cause” 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.”
Link to 6. Access to Patient Information & Ongoing Treatment Protections 6. Access to Patient Information & Ongoing Treatment Protections
The current Act has provisions to facilitate access to patient information and ongoing treatment for physicians. The proposed legislation currently does not extend the protections to dentists and other health care practitioners.
Link to Implications for Texas Healthcare Employers Implications for Texas Healthcare Employers
If signed by Governor Abbott, SB 1318 would go into effect on September 1, 2025. The amendments would only apply to agreements entered into or renewed on or after the effective date. While the law does not directly affect the enforceability of existing agreements, the amendments may weigh on the reasonableness of existing physician buyouts, which require a buyout at a “reasonable price,” and the reasonableness of existing restrictions, such as the geographic scope and duration.
Healthcare employers should inventory their existing non-compete agreements with physicians, dentists, nurses, and physician assistants. Not only should employers revise future agreements to comply with the law if passed, but employers should consider whether to amend existing non-compete agreements to have parity with the new agreements.
Link to Current Status of SB 1318 Current Status of SB 1318
As of this writing, Senate Bill 1318 has cleared the Senate and House and is on its way to the way to Governor as an enrolled bill. You can check the status of the bill here.
The bill has the support of the Texas Medical Association and various physician and nurse advocacy groups but is notably opposed by the Texas Hospital Association, which is the principal advocate of the state’s hospitals and healthcare systems.