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FTC Proposes Ban on Non-compete Agreements
The Federal Trade Commission (FTC) has proposed to prohibit employers from entering into, or attempting to enter into, non-compete agreements with workers. This categorical ban, if finalized, would include physician practices and other healthcare entities, although it appears the rule would not apply to not-for-profit hospitals.
Under the proposed rule, a non-compete clause is defined as a contractual term that prevents a worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker's employment with the employer. Under the FTC proposal, employers would be required to rescind existing non-compete agreements. The FTC contends non-compete clauses have negatively affected competition in labor markets and have resulted in increased consumer prices and concentration in the healthcare sector. According to the FTC, all 50 states restrict non-compete agreements between employers and workers to some degree, although their scope and enforceability vary greatly. The FTC proposal to ban non-competes would supersede state laws.
In the rule, the FTC describes possible alternatives to a categorical ban on non-compete agreements, including adoption of a rebuttable presumption of unlawfulness or varying the rules for different categories of workers, such as categories based on occupation or earnings. Under a rebuttable presumption approach, the prohibition of non-compete agreements would serve as the default rule to protect against adverse effects of their use on competition unless an employer could justify the necessity of a non-compete.
Following the release of the rule, the American Medical Association (AMA) made a statement opposing unreasonable non-compete clauses and noted that many states have enacted healthcare-specific non-compete statutes that take into account the uniqueness of individual healthcare markets. The AMA said this “balanced approach” must be considered against a federal ban on all non-compete agreements.
FTC Accepting Comments Through March 20, 2023
If you would like to submit comments on the FTC's proposal, go to the FTC's proposed rule here. Click the blue Comment button in the upper-left corner, and then follow the prompts.