FTC Takes a Stand: Nationwide Ban on Noncompetes to Boost Physician Freedoms

The Federal Trade Commission (FTC) voted 3-2 Tuesday to issue a final rule banning new noncompete agreements for all U.S. workers while phasing out existing noncompetes for all employees but “senior executives.” Because the FTC's jurisdiction is generally limited to for-profit entities, however, it is unlikely the rule would apply to nonprofits.

Let’s unpack this a bit for our community since I know a lot of you work for non-profit healthcare corporations and the question is how this FTC decision affect you?

FTC’s Jurisdiction

• The Federal Trade Commission (FTC) primarily focuses on regulating commercial practices and ensuring fair competition within the marketplace. Its authority extends to for-profit entities, including businesses, corporations, and other commercial actors.

• Nonprofits, on the other hand, operate differently. They often serve charitable, educational, or community-oriented purposes rather than pursuing profits. As a result, the FTC’s jurisdiction does not typically cover nonprofit organizations.

Noncompete Agreements and Nonprofits:

• Noncompete agreements are contractual provisions that restrict employees from working for competitors or starting similar ventures after leaving their current job. These agreements are common in the for-profit sector, where businesses seek to protect trade secrets, client relationships, and competitive advantages.

• However, nonprofits also employ staff, and some may use noncompete clauses. For example:

  • Research Institutions: Nonprofit research institutions may have scientists, researchers, or experts who contribute valuable knowledge. They might include noncompete clauses to prevent these employees from joining rival research centers.

  • Healthcare Organizations: Nonprofit hospitals or clinics may use noncompete agreements for physicians, especially if they invest in training and development.

Challenges and Considerations

• Public Interest: Nonprofits serve the public interest, and their mission often involves collaboration, knowledge sharing, and community impact. Overly restrictive noncompete agreements could hinder these goals.

• Balancing Act: Balancing the need to protect organizational interests with employees’ rights and professional mobility is crucial. Nonprofits must carefully draft noncompete clauses to avoid undue restrictions.

• Legal Uncertainty: While the FTC’s recent ban specifically targets noncompete agreements in the for-profit sector , the legal landscape for nonprofits remains less defined. State laws, court decisions, and individual circumstances play a significant role. Stay tuned as I expect many states to get involved to develop their own laws in regard to non-competes. As of now, five states in the United States outright ban virtually all non-competes. These states are:

  1. California

  2. Colorado

  3. Minnesota

  4. North Dakota

  5. Oklahoma

The Final Rule on For Profit Businesses

Under the new rule impacted employers couldn’t enforce existing noncompetes with workers other than senior executives, defined as those in “policy-making positions” who earn more than $151,164 annually from their employer. Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.

Employers would also be required to inform existing non-senior executive employees that their noncompetes no longer bind them, and would be prohibited from initiating new noncompetes going forward.

The ban will take effect 120 days after publication in the Federal Register, unless a court blocks the new rule. Less than 24 hours after the vote, the U.S. Chamber of Commerce and several other business groups filed a legal challenge in a Texas federal court. Among other arguments, the groups contend the FTC lacks authority to define unfair methods of competition and that the rule is too wide in scope. 

Healthcare Workers and Business Was A Driver

In online discussion April 23, the commissioners cited health care specifically among their reasons for supporting the ban.

The FTC estimates that banning noncompetes would reduce spending on physician services by $74 to $194 billion over the next decade and increase the number of overall new businesses by an average of 2.7% each year in the U.S.

Benjamin Cady, attorney adviser in the FTC’s Office of Policy Planning said“Workers told us that they want to compete.” He went on to say:

“They want to be able to take better jobs and make the most of their abilities. They want to strike out on their own and start new businesses, but noncompetes to prevent them from doing so. Workers other than senior executives also explained that they had no real choice about whether to enter into noncompetes and no practical ability to negotiate.”

His presentation included a quotation from “a physician in a rural underserved area of Appalachia” who said noncompetes are ubiquitous in health care, making providers feel trapped in current employment. That in turn leads to burnout that shortens career longevity.

During its public comment period, the FTC received more than 26,000 comments on the proposed rule, with over 25,000 comments in support of the FTC’s proposed ban on noncompetes. The comments informed the FTC’s final rulemaking process, with the FTC carefully reviewing each comment and making changes to the proposed rule in response to the public’s feedback.

In press releases from commission members, commission member Alvaro Bedoya at first said he had questions about the FTC’s ability to enact a rule instead of using individual enforcement actions. He said physician comments, combined with effects of COVID-19, were a factor in convincing him.

“I started reading the record and the comments of physicians who had their lives upended by noncompetes,” Bedoya said. “These are doctors who had to move their families, move out of the state, just so they could practice medicine. A pandemic killed a million people in this country and there are doctors who cannot work because of a noncompete.”

The AMA estimates 37-45% of physicians are impacted by noncompetes. Last year, the organization came out in support of a ban on noncompetes for physicians. The American Hospital Association and Federation of American Hospitals oppose a ban.  

In addition to the 5 states that have completely banned non-competes, many states have already enacted legislation addressing non-compete agreements prior to this ban, including my state of Indiana, which has eliminated non-compete agreements for primary care physicians. Senate Enrolled Act (SEA) 7 (2023) provides that a primary care physician (family practice, pediatricians, and internal medicine) and an employer may not enter a non-compete agreement. The Indiana law, which went into effect on July 1, 2023, also allows other physicians to void a non-compete agreement for cause, although that provision has been the subject of still-pending litigation.

Your Business Powers Are Wanted In The Marketplace

The reason for these state non-compete bands is because in the midst of a national physician shortage, states when to retain you in their tax and business base—rather than having you move away. In other words, states recognize your business value in addition to your professional services value.

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