SPECIAL ALERT - FTC Finalizes Ban on Noncompete Agreements

FTC Finalizes Ban on Noncompete Agreements

On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule that would ban employers from imposing non-competes on their employees. The FTC asserts that this exploitative practice keeps wages low, and suppresses new ideas.^[1] Notably, while the final rule will affect all industries, not just healthcare, this proposal comes at a time when healthcare employers across the U.S. are struggling with staffing shortages.^[2]

Existing noncompetes for the majority of workers will no longer be enforceable after the rule goes into effect (i.e., 120 days after publication in the Federal Register); however, the FTC ban appears likely to face a legal challenge, and it could be years before it can take effect.

Under the final rule, noncompetes for senior executives can remain in force under the new ruling, but employers may not enter in or attempt to enforce any new noncompetes, even if that includes a senior executive.^[3] Notably, the Commission also recognizes that they have no jurisdiction over not-for-profit entities, however they reserve the right to evaluate any entity’s non-profit status.^[4] The FTC specifically stated that “some portion of the 58% of hospitals that claim tax-exempt status as nonprofits and the 19% of hospitals that are identified as State or local government hospitals in the data cited by AHA likely fall under the Commission’s jurisdiction and the final rule’s purview.”^[5]

While most healthcare employees and workers, including physicians, believe that the ruling is long overdue and that noncompetes “impede patient access to care, limit physicians’ ability to choose their employer, contribute to burnout and stifle competition,”^[6] the American Hospital Association (AHA), stated that the “FTC’s final rule banning non-compete agreements for all employees across all sectors of the economy is bad law, bad policy, and a clear sign of an agency run amok.^[7]

Look for next month’s (May 2024) Health Capital Topics article that will discuss, in more detail, the final rule, reactions from healthcare industry stakeholders, and potential implications for healthcare valuations (both business and compensation valuations).

(Read the FTC’s Press Release Here)

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