Physicians are often frustrated by government rulings that affect their ability to run their practices and treat their patients. Typically, the agency responsible for stirring the pot is the Centers for Medicare and Medicaid Services. However, another agency recently caught the attention of physicians nationwide—the Federal Trade Commission (FTC).
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November 2024On April 23, the FTC issued a final rule banning noncompetition agreements. After a roller coaster of litigation and uncertainty that lasted months, the FTC Final Rule was halted by a federal court in Texas, in the form of a nationwide injunction. Now the question looms: What does this mean for current and future physician noncompetes?
The FTC Final Rule shook employers across all industries because noncompetes have become a ubiquitous tool used to protect business plans from disruption. Noncompete provisions, stating that a worker may not engage in a similar business within a certain area for a certain period after they have terminated employment from their current job, are often incorporated into employment agreements.
On one hand, the value of a non-compete is obvious: Employers invest many hours and resources into their workers, so they don’t want these workers to simply set up shop nearby and compete with them directly. On the other hand, noncompetes can become burdensome to the worker, forcing them to stay with a company because they don’t have viable options to work elsewhere.
As a result, employers should engage an attorney to review their current agreements with workers to determine if the noncompete provisions comply with applicable state law.” — Emily A. Johnson, JD
Noncompetes have historically had varying degrees of enforcement. Certain states have restricted the area within which a noncompete may be enforceable or the length of time for which one can be enforced. For professional services, such as those provided by a physician, noncompetes can be restricted because an overly broad noncompete could endanger a community by cutting off access to adequate medical services.
What Did the FTC Final Rule State?
If enacted as planned on Sept. 4, almost all existing noncompetes would have been invalidated for workers at for-profit entities. The definition of “workers” under the FTC Rule is not limited to employees, but includes other individuals, such as independent contractors, interns, and volunteers, who provide services for healthcare entities.
As the FTC Final Rule was written, employers were required to provide a notice to all current and former employees working under a noncompete, stating that their noncompete would not be enforced. Employers were encouraged to review their worker census and list of terminated workers to determine who would require this notice.
Preparations for the FTC Final Rule were uncertain, however, because two legal challenges to the FTC ruling were immediately filed. In one lawsuit, a court in Texas granted a preliminary injunction to the plaintiffs only, which prevented the FTC Rule from being enacted with respect to those specific businesses. In the other lawsuit, a court in Pennsylvania ruled the opposite—denying a stay that would prevent the FTC Rule from being enacted.
The Texas court promised a full ruling before Aug. 30. On Aug. 20, that ruling was issued, and a nationwide injunction against the enactment of the FTC Final Rule was imposed. The court’s reasoning for imposing the nationwide injunction was that the FTC had “exceeded its statutory authority in implementing the rule.” As a result of this ruling, employers may set aside the requirements of the FTC Final Rule for the time being.
Current Status of Noncompete Agreements
The injunction blocking the FTC Final Rule essentially returns the power to enforce existing noncompete laws to the state. Noncompete agreements that are reasonably tailored to comply with applicable state law will continue to be enforced. As a result, employers should engage an attorney to review their current agreements with workers to determine if the noncompete provisions comply with applicable state law.
States may have restrictions on the duration of the noncompete, as well as the area the noncompete covers. Depending on the nature of the business the noncompete restricts, additional restrictions may apply. Noncompetes with healthcare practitioners are, in some states, expressly prohibited. California and Minnesota are examples of states that have largely banned noncompetes already. Other states, like Illinois, have codified restrictions on noncompetes that apply based on the earning thresholds of the worker.
Finally, some states have codified noncompete restrictions that apply specifically to the healthcare industry. For example, in Pennsylvania, a new law set to go into effect on Jan. 1, 2025, deems non-competes with healthcare practitioners void, unenforceable, and contrary to public policy, with few exceptions.
Even if a state has not codified an express restriction on noncompetes, case law may inform whether any particular restrictions will be applied to a noncompete that involves healthcare services. Because of the importance of healthcare services to communities, some states will limit noncompetes so that citizens of that state can access affordable healthcare services.
Conclusion
The injunction imposed on the FTC Final Rule prevents its implementation for the time being; however, expectations are that the present litigation will continue. Appeals may affect the injunction, so it is important to work with an attorney to monitor any developments. In the meantime, employers should review their agreements for compliance with state law.
Finally, this is a great opportunity for both employers and workers to review their agreements to determine if anything additional can be done to protect their interests.
Emily A. Johnson, JD, is a nationally recognized attorney, author, and speaker with McDonald Hopkins LLC. Email her at
ejohnson@mcdonaldhopkins.com.
Reprinted from The Rheumatologist with permission from the American College of Rheumatology.