FTC’s new ban on noncompetes has big impact on health care industry

In a move that could have far-reaching implications for the health-care industry, the Federal Trade Commission last week voted to ban noncompete agreements in most situations.

“Workers told us that they want to compete,” said Benjamin Cady, an attorney advisor in the FTC’s Office of Policy Planning “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 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.”

Cady mentioned that a physician in a rural underserved area of Appalachia said noncompetes are ubiquitous in health care, making providers feel trapped in current employment. This in turn leads to burnout that shortens career longevity.

The health-care industry frequently relies on noncompetes, especially as a growing number of doctors are employed by hospitals and other corporations. Eliminating noncompetes equalizes the balance of power between those physicians and their employers, and frees medical workers to move more easily among jobs, some experts said. It also could cause wages to rise.

Comments previously submitted by health-care employer groups such as the American Hospital Association criticized the FTC’s “sweeping” noncompete ban and highlighted retention difficulties in the for-profit portion of the hospital sector.

The American Medical Association earlier adopted an official position opposing noncompete clauses for employed physicians.

Cady summarized the key provisions of the new policy:

• New noncompete agreements are banned for workers, including senior executives, as of the effective date.
• Existing noncompetes may remain in effect for senior executives who earn more than $151,164 and are in policymaking positions, because they are more likely to negotiate and receive compensation for noncompetes.
• Existing noncompetes are unenforceable for all other workers after the effective date.
• Formal recission is not required. Employers must provide notice to employees, and the FTC has model language doing so.
• The effective date will be 120 days after publication in the Federal Register.

Related: Divided FTC finalized rule to ban noncompete agreements

Although the FTC estimates that the final rule will reduce health-care costs by up to $194 billion over the next decade and increase worker earnings by $300 million annually, the ruling faces legal hurdles. Suzanne Clark, president and CEO of the U.S. Chamber of Commerce, said the move is a “blatant power grab” that will undermine competitive business practices, adding that the chamber will sue to block the measure.