Biden targets noncompete agreements with new EO
The order represents a multipronged approach to encouraging greater competition and economic growth by making it easier for workers to change jobs.
President Joe Biden took his first major step to deliver on his 2020 campaign promise to curtail non-compete agreements when he signed the Executive Order on Promoting Competition in the American Economy on July 9. The order, which is wide-ranging in scope, represents a multipronged approach to encouraging greater competition and economic growth by making it easier for workers to change jobs, among other objectives.
Employers in all professions, particularly the medical profession, have sought to use non-compete agreements and restrictive covenants to protect their proprietary information by preventing employees from working for competitors in a specific geographic area for a limited amount of time. The position of hospitals and medical practices is—why should we help train a doctor and improve his skills, give the doctor access to our patients, purchase equipment on his or her behalf—only to have the doctor leave (or be fired) to open up a competing business?
Related: A look at employment protections in the upcoming Biden administration
It is a fair question. But any way the argument is spun, it is clear what noncompetes in the health care sector are really about: money and retaining business. They have little to do with what’s in the best interest of the physician or patients, and more to do with financial protection. In the end, patients’ continuity of care suffers because their doctor is banned from treating them unless the patient is willing to travel a great distance to see their doctor. Or, worse, the doctor’s now-former employer will not tell the patient where his doctor has gone, leaving the patient to fend for himself or to be arbitrarily fit in the schedule with another one of the employer’s doctors.
Biden’s executive order targets the health care industry by focusing on lowering the cost of prescription drugs and hearing aids, revising hospital merger guidelines, and standardizing health insurance. Perhaps most significantly for health care employers, the order aims to significantly limit the use of non-compete causes in employment contracts while also revamping occupational licensing requirements.
How this will be accomplished, however, remains unclear. In the order, Biden encourages the Federal Trade Commission (FTC) to adopt rules which would “curtail the unfair use of noncompete clauses and other clauses or agreements that may unfairly limit worker mobility.”
While this is not the most specific set of instructions—which is likely intentional—it gives the FTC some leeway in how it wants to tackle the problem of employers unreasonably and excessively using non-compete agreements. However, it is unlikely that the FTC will issue a total ban on noncompetes. By reading between the lines in this executive order, it appears that Biden isn’t against using noncompete agreements if doing so will reasonably protect businesses.
There is speculation that the FTC will reach some sort of compromise by banning the use of noncompete clauses in contracts with employees who earn less than a certain amount of money, or who live in rural areas where skilled workers are hard to come by.
Moreover, it has yet to be determined how the language “… or agreements that may unfairly limit worker mobility” will be interpreted by the FTC. Arguably, this language may include other restrictive covenants that are currently enforceable in most jurisdictions, such as customer and employee nonsolicitation provisions, no-hire provisions, and nonservicing provisions.
Federal regulation of non-compete agreements is not a novel concept. In October 2016, President Barack Obama issued a “State Call to Action on Noncompete Agreements” to “address wage collusion, unnecessary non-compete agreements, and other anticompetitive practices.” Since that time, more than 20 states (plus the District of Columbia) have passed laws to limit the enforcement and application of noncompetes. The FTC’s involvement should continue this conversation to help employee mobility while allowing companies to protect key information.
The executive order does not change the law of restrictive covenants. It merely “encouraged” the FTC to act. Much remains to be done before any ban or limitations on restrictive covenant agreements by the FTC become reality. However, employers that use noncompete or nonsolicitation provisions should expect to see an increase in antitrust regulation and possibly civil litigation in light of Biden’s executive order.
As some may recall, we wrote an article back in June about the introduction of House Bill 681 to the Pennsylvania House of Representatives Health Committee earlier this year. HB 681, also known as the “Health Care Practitioner Non-Compete Agreement Act,” would prevent the use of non-compete agreements in health care practitioners’ employment contracts in Pennsylvania. While the proposed legislation has not yet been passed, it continues to make its way through the legislature. The president’s executive order may increase the likelihood of success that HB 681 becomes the law.
Going forward, employees, particularly physicians and dentists, should keep a close eye on noncompete legislation at the state and federal level as change may impact their employment contract retroactively, or an employment contract with a prospective employer.
Vasilios J. (Bill) Kalogredis has been advising physicians, dentists, and other health care professionals and their businesses as to contractual, regulatory and transactional matters for over 45 years. He is chairman of Lamb McErlane’s health law department. Contact him at bkalogredis@lambmcerlane.com, 610-701-4402.
Rachel E. (Lusk) Klebanoff is a senior associate at the firm who focuses on health law and health care litigation. She represents physicians, dentists, medical group practices, and other health-related entities in transactional, regulatory and compliance matters. Contact her at rlusk@lambmcerlane.com.
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