On Tuesday, the Federal Trade Commission issued a final rule effectively, banning non-compete agreements, provisions, etc. for employees, including executives. The final rule contains separate provisions defining unfair methods of competition for the two subcategories of workers.
- Specifically, the final rule provides that, with respect to a worker
other than a senior executive, it is an unfair method of competition for a person to enter into or
attempt to enter into a non-compete clause; to enforce or attempt to enforce a non-compete
clause; or to represent that the worker is subject to a non-compete clause. - The final rule provides that, with respect to a senior executive, it is an unfair method of
competition for a person to enter into or attempt to enter into a non-compete clause; to enforce or
attempt to enforce a non-compete clause entered into after the effective date; or to represent that
the senior executive is subject to a non-compete clause, where the non-compete clause was
entered into after the effective date.9
The full text of the Final Rule is available here: noncompete-rule
Under the rule, existing non-compete provisions (contracts, terms, etc.) for most workers will not be enforceable. Non-competes for senior executives, employees in policy-making positions, earning more than $151,164 per year, can remain in-force. Employers are barred from entering into or trying to enforce any new non-competes, going forward, even for senior executives. The rule is silent however, on non-disclosure provisions, non-solicitation provisions, and other security type, anti-competitive provisions.
The concern for employers as expressed by groups such as the U.S. Chamber of Commerce is that businesses invest time and capital in developing and training staff and the non-compete provides protections against loss of the investment to other competing businesses and industries. An example of the business argument is here via the Business Roundtable: https://www.businessroundtable.org/business-roundtable-opposes-ftcs-noncompete-ban-files-lawsuit-challenging-final-rule
From a healthcare perspective, non-compete agreements and provisions are common, especially among certain classes of employees or for certain businesses such as staffing agencies and contractors (therapy, food services, environmental services). Physician groups overwhelmingly use non-compete provisions, especially those that contract directly with hospitals or other providers (think hospitalists, E.D. groups, radiology groups). Therapy contractors use non-compete provisions extensively. Frankly, I have not seen a therapy contractor that did not have non-competes as part of their business model for their therapists, along with non-solicitation terms for the provider.
Staffing agencies that “hire or employ” nurses, nursing assistants and then in turn, rent the staff or provide the staff for open positions at hospitals, nursing homes, hospices, home health agencies, etc., use non-compete provisions as part of employment. Note, not all agencies do as some serve as clearing houses rather than employers – think gig workers.
The reactions to the rule are many, pro and con. Per the California Medical Association, “Non-competes are a widespread and often exploitative practice imposing contractual conditions that prevent employees from taking a new job or starting a new business. Non-competes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, relocate, or leave the workforce altogether. An estimated 30 million workers—nearly one in five Americans—are subject to a noncompete”. Between 37% and 45% of physicians are affected by non-competes, according to the American Medical Association.
The FTC claims that the rule will have a positive impact on healthcare costs ($194 billion), though their research as cited, is far from definitive, focusing only on physician level employment. The claim is that non-competes force consolidation and then in turn, drive-up healthcare prices. Most healthcare cost growth today, however, is demand driven (older adults, more chronic disease), heavily influenced by labor scarcity. Non-competes, in existence or not, will not influence the supply of nurses, CNAs, therapists, pharmacists, etc. The FTC cited research is here: https://www.aeaweb.org/articles?id=10.1257/app.20180078
Yesterday, the day after the rule was issued the U.S. Chamber 0f Commerce filed a suite in Tyler, TX, joined by The Business Roundtable, the Texas Association of Business and the Longview Chamber of Commerce. Another suit was filed by Ryan LLC, a global tax services company, in the Northern District of Texas, also challenging the rule and the FTC’s authority to issue the rule. The Business Roundtable includes chief executives from long-term care pharmacy Omnicare parent CVS Health, the Carlyle Group, CBRE Group and several pharmaceutical companies and consultancies. The Chamber suit is available here: Complaint-Chamber-v.-FTC-E.D.-Tex
I will continue to track this topic as it proceeds via litigation and possible, Congressional intervention. The implications for the healthcare industry are plentiful.