The Federal Trade Commission (FTC) has adopted a comprehensive ban on non-compete clauses in employment contracts with no exceptions for the health care industry. Commissioners voted 3-2 to approve issuance of a final rule which takes effect 120 days after publication in the Federal Register, but legal challenges are likely to stall implementation of all or part of the regulations.
Last year, ACOI joined the osteopathic community is sending a letter to the FTC in which it was noted the health care industry is disproportionately impacted by the abuse of non-competes. The letter, however, asked for narrow exceptions to a non-compete ban, including instances in which a non-compete can serve a legitimate business purpose for small physician practices struggling to compete in markets predominantly controlled by a limited number of hospital or health systems.
The FTC estimates that banning non-competes will result in $74-194 billion in reduced spending on physician services over the next decade.
The rule applies to all workers, with a limited exception for existing non-competes with senior executives—those with total annual compensation of at least $151,164 and who serve in a “policy making position.” Non-competes with senior executives can remain in force, but businesses may not include non-competes in new contracts issued to senior executives after the effective date of the rule.
The final rule does not limit or affect enforcement of State laws that restrict non-competes where State laws do not conflict with the final rule. In cases where State laws conflict with the final rule, the rule prevails.
The FTC does not have the authority to apply the rule to nonprofits. However, the FTC makes clear in the rule that not all entities claiming tax-exempt status as nonprofits fall outside its jurisdiction, which means that hospitals and other health care entities claiming tax-exempt status as nonprofits could still fall within final rule’s purview. In our letter, the osteopathic societies asked the FTC to identify a pathway to prevent non-profits from behaving like for-profit entities in ways that seek to limit market competition.
Once the rule takes effect, employers will be required to provide notice to workers with existing non-competes that they are no longer enforceable.
The U.S. Chamber of Commerce has filed suit against the rule, and other challenges are expected. ACOI is following developments and will share information as it becomes available.