Healthcare employers: Beware of physician employment agreements that renew automatically.
Why?
On September 1, 2025, a new law went into effect giving physicians, dentists, nurses, and physician assistants (PAs) significant new non-compete protections in Texas.
As a result, non-compete agreements renewed or entered into on September 1 or later must comply with Texas Senate Bill 1318 or be rendered unenforceable. Any attempts to enforce non-compliant agreements could result in the defendants’ ability to countersue for attorney fees and void the agreement altogether.
Healthcare Employers: Bring Healthcare Non-Compete Agreements into Compliance with SB 1318
SB 1318 introduced six new requirements for Texas healthcare non-competes. These restrictions apply to physicians, dentists, nurses, and PAs, unless otherwise noted.
1. Geographic Restrictions: Maximum 5-Mile Radius Only
SB 1318 imposes a hard cap of five miles from the location where the healthcare practitioner primarily practiced before the contract or employment was terminated.
What employers should check for: Determine the primary practice location for all covered healthcare professionals, and ensure that employment agreements renewed or signed on or after September 1 only prohibit the practice of medicine within a five-mile radius of that location.
2. Duration Limits: One Year Maximum, No Exceptions
Under the new law, all covenants not to compete must expire one year from contract or employment termination, with no exceptions or extensions allowed, regardless of the practitioner’s role, specialty, or access to confidential information.
What employers should check for: Review all new or renewing employment agreements and remove any restriction periods exceeding 12 months for covered healthcare professionals. Update physician employment contract templates to specify maximum one-year non-compete periods.
3. Buyout Caps: Annual Salary Maximum
Texas has long required physician non-compete agreements to provide for a buyout to allow the physician to “buy out” or escape their non-compete restrictions.
- Before SB 1318, the amount of the buyout was defined vaguely as “a reasonable price” or one set by an arbitrator.
- Post-SB 1318, buyout amounts are clearly and unambiguously capped at “the practitioner’s total annual salary and wages at the time of termination.”
What employers should check for: Revise new and renewing employment agreements to clearly state the buyout amount, taking care not to exceed the practitioner’s total annual salary and wages at the time of termination. Remove any language deferring buyout determination to arbitration, mutual agreement, or revenue-based formulas.
4. Plain-Language Requirements
All covenant terms and conditions must be “clearly and conspicuously stated in writing”, creating a plain-language standard for healthcare non-compete provisions.
What employers should check for: Review employment contracts for ambiguous language, legalese, or industry jargon. Avoid vague terms, such as “reasonable” or “standard”. Instead, plainly state your intentions and define key terms and variables, either within the contract or by including supporting documents via reference.
5. Physician-Specific Protections: Automatic Voidance
Non-competes become “void and unenforceable” if licensed physicians are involuntarily discharged without “good cause.” SB 1318 defines good cause as “a reasonable basis for discharge directly related to the physician’s conduct, job performance, and employment record.”
What employers should check for: Establish formal performance review processes and disciplinary documentation protocols for all physicians. Ensure employment contracts and HR policies clearly define “good cause” termination criteria and require thorough documentation before any involuntary physician discharge to preserve non-compete enforceability.
Unlike other requirements outlined in the bill, this protection is only available to physicians licensed by the Texas Medical Board (TMB).
6. Administrative Role Exception for Physicians
Medical directors and physician executives in purely administrative roles may be excluded from SB 1318’s protections. The law excludes “managing or directing medical services in an administrative capacity” from its definition of practicing medicine.
What employers should check for: Review job descriptions and employment agreements for physician executives and medical directors to determine whether their roles are exclusively administrative or also encompass clinical duties.
In our opinion, most medical director roles involve both administrative responsibilities and clinical oversight – training providers, overseeing patient care, ensuring equipment is operational, etc.
As a result, employers may want to include “just in case” language that complies with SB 1318, even if the employer believes the position is purely administrative. This protects both parties if a court later determines the role includes the practice of medicine.
This administrative exception is strictlylimited to TMB-licensed physicians.
Don’t Forget Existing Requirements for Texas Physician Non-Competes
These newly enacted restrictions are in addition to the existing requirements for non-compete agreements in general and physician non-compete agreements specifically.
All non-compete agreements in Texas must:
- Be ancillary to an otherwise enforceable agreement, such as an employment agreement;
- Be in exchange for “consideration” (i.e. something in return, such as specialized training or confidential information); and
- Be reasonable in scope of activity.
Additionally, a physician non-compete agreement in Texas is only enforceable if it complies with the new SB 1318 restrictions, plus:
- It must provide a physician access to medical records for a patient they have treated in the year prior to separating from the practice.
- It must allow for the patient lists and records above to be accessible to the physician in the format in which they are kept in the ordinary course of business of the medical practice.
- It must permit the physician to continue treating any of her patients with acute illnesses even after her contract or employment has terminated.
- It must contain a provision allowing the physician to buy out of the agreement, now capped (per SB 1318) at the practitioner's total annual salary and wages at the time of contract termination.
Healthcare Employers: Beware of Automatic Contract Renewals
SB 1318 became effective on September 1, 2025, and any agreements “entered into or renewed on or after the effective date” must comply with the changes in law.
If your physician employment agreement automatically renews on October 1, 2025, and still contains a 25-mile geographic restriction or a two-year duration, those provisions become unenforceable upon renewal. Grandfathering protection only applies to contracts that remain unchanged after the effective date.
Here’s the hidden risk: Non-compete agreements that do not comply with SB 1318 will be unenforceable and any attempts to enforce could result in the defendant's ability to sue for attorney's fees.
What employers should check for: Immediately audit renewal schedules to confirm that employment agreements for covered healthcare professionals do not renew – or have not renewed – with unenforceable provisions since September 1.
Attempting to Enforce Non-Compliant Agreements Creates Liability
In Texas non-compete law, defendants can recover attorney fees and costs when employers try to enforce restrictions that exceed what's necessary and reasonable to protect legitimate business interests.
If the defendant can demonstrate that the employer plaintiff was trying to knowingly enforce an unreasonable agreement, the courts may:
- Void the non-compete agreement entirely; and
- Award attorney’s fees and costs to the defendant.
Courts may view attempts to enforce obviously non-compliant restrictions (such as geographic limitations that exceed a five-mile radius) as compelling evidence that employers "knew" the limitations were unreasonable, making attorney fee awards more likely.
While defendants sued under unenforceable non-competes generally cannot recover lost wages, punitive damages, or other consequential damages, attorney fees and costs can still represent substantial liability for healthcare employers, particularly in extended litigation over multiple practitioners or complex employment arrangements.
Take Action Now: Work with Legal Counsel to Audit and Update Texas Healthcare Non-Compete Agreements for SB 1318 Compliance
SB 1318 represents a fundamental shift in healthcare employment law that requires immediate attention from healthcare employers. The combination of strict statutory limits and potential attorney fee liability creates significant risks for organizations that fail to update their employment practices.
Our healthcare contract attorneys can review and redline your agreements to bring them into compliance with SB 1318. Don’t wait until looming contract renewals force you to update contracts under deadline pressure.
Contact Hendershot Cowart P.C. today at (713) 783-3110 to schedule a compliance consultation today.