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The FTC Noncompete Ban Impact to Healthcare Employment
The Federal Trade Commission (FTC) issued a final rule banning noncompete agreements nationwide in late April 2024. The rule is already facing multiple legal challenges. If it survives these challenges, it will significantly impact the healthcare industry. According to the American Medical Association (AMA), which supports the ban, between 37% and 45% of all physicians are affected by noncompetes.
The AMA has taken the stand that noncompete clauses are problematic because they limit physicians’ opportunities for advancement and restrict their ability to provide care in economically or socially marginalized communities. According to the AMA, the COVID pandemic heightened concerns about noncompetes when physicians advocating for healthcare worker safety were threatened with termination, which could have resulted in the need to relocate or face months or years of unemployment.
On the other hand, the American Hospital Association (AHA) has expressed concerns about the ban. Last year, the AHA argued that banning noncompetes would negatively affect the labor market for both physicians and executives. The AHA claimed that healthcare systems with noncompetes have significant incentives to provide continual training for their employees, including physicians, executives, and staff. This is because these employers know their employees won't immediately leave for another organization after improving their knowledge and skills.
If the ban survives the imminent legal opposition, it’s likely that a wide overhaul of the employment landscape will sweep across American healthcare. First, healthcare workers, including doctors, nurses, and administrative staff, will have more freedom to change jobs without the restrictions of noncompete agreements. This increased labor mobility could lead to a more competitive job market within the healthcare industry. Second, hospitals and health systems will experience increased competition for healthcare providers as professionals move more freely between organizations. Finally, healthcare companies that rely heavily on noncompete agreements may need to change their hiring and retention strategies and rely on alternative means to protect their trade secrets and confidential information. Legal and human resources professionals must review organizational employment practices to ensure compliance with the new rule.
The FTC’s announcement includes the following summarized points:
The new rule aims to protect workers' ability to change jobs, promote innovation, and encourage new business formation. Many noncompete agreements have been criticized for keeping wages low, suppressing new ideas, and hindering economic development.
The final rule will become effective 120 days from publication in the Federal Register. Existing noncompetes for most workers will become unenforceable after the rule’s effective date. However, for a small percentage of senior executives, existing noncompetes can remain in force. Employers cannot enter into or enforce new noncompetes, even if they involve senior executives.
Employers must give workers (other than senior executives) bound by existing noncompetes notice that their noncompetes will no longer be enforced against them.
The FTC rule will still permit noncompetes tied to the sale of a business, such as a medical practice.
In most cases, charitable and other 501(c)(3) organizations, including tax-exempt hospitals, will be exempt from the Rule. But FTC commissioner Rebecca Kelly Slaughter said she reserves the right to enforce the noncompete ban on nonprofits that behave like for-profits.
In summary, while the ban aims to benefit workers and promote competition, healthcare companies must navigate these changes strategically to maintain their competitive edge while protecting workers’ rights.
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