Healthcare Industry Weighs In on Proposed Noncompete Clauses Ban

By Jonathan Springston, Editor, Relias Media

The Federal Trade Commission (FTC) has extended the deadline for public comments on its proposal to ban noncompete clauses in contracts until April 19.

First announced in early January, the FTC wants to eliminate noncompete clauses in employment contracts, arguing these provisions violate Section 5 of the Federal Trade Commission Act. Commissioners called this an “exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The FTC estimated that by eliminating these provisions, worker wages could increase by nearly $300 billion annually and expand career opportunities for million of people.

In February, in testimony to the Senate Committee on Health, Education, Labor, and Pensions, the American Academy of Family Physicians asked Congress to pass legislation that would ban noncompete clauses. “Noncompete agreements in healthcare impede patient access to physicians, deter advocacy for patient safety, limit physicians’ ability to choose their employer, and stifle competition. Despite projected physician shortages, many healthcare employers still intentionally restrict physician mobility and workforce participation via noncompete agreements.”

The American College of Physicians also supports the FTC proposal, even counseling its members “to not sign contracts that include these restrictive covenants.” The American College of Emergency Physicians “unequivocally supports a ban on these predatory clauses.”

In a dissenting opinion arguing against the proposed rule, FTC Commissioner Christine S. Wilson questioned the agency’s legal authority to ban noncompete clauses and described the idea as a “radical departure” from precedent and wrote that there is “a lack of clear evidence to support the proposed rule.”

Similarly, the American Hospital Association concurs the FTC does not hold the power to ban these clauses. “The proposed regulation errs by seeking to create a one-size-fits-all rule for all employees across all industries, especially because Congress has not granted the FTC the authority to act in such a sweeping manner,” the group wrote in a letter to the commission in February. “Even if the FTC had the legal authority to issue this proposed rule, now is not the time to upend the healthcare labor markets with a rule like this.”

The Chicago-based law firm Kirkland & Ellis explained “while the legality of noncompete agreements has traditionally been regulated at the state level, the FTC’s proposed rule purports to supersede any state statute, regulation, order, or interpretation to the extent that it may be inconsistent with the proposed rule’s requirements, unless it affords worker protection that is greater than the protection the proposed rule provides.”

Kirkland & Ellis attorneys noted these doubts about legality likely foreshadow court challenges, if the FTC enacts the rule. Nevertheless, the firm cautioned “companies seeking to protect their investments in their employees and confidential information should take stock of their existing covenants and should enlist experienced counsel in the early stages of any disputes related to enforcement of those covenants. The FTC has signaled increased scrutiny of these kinds of practices, and companies should be prepared.”

For more on this and related subjects, be sure to read the latest issues of Healthcare Risk Management and Hospital Employee Health.