Non-Compete Clauses: Will They Be Banned for Physicians?

What

Employers may be prohibited from using non-compete clauses in employment contracts if a new rule proposed by the Federal Trade Commission (FTC) is finalized. The proposed ban would apply to all employment contexts, but non-compete clauses are often used by hospitals to prevent physicians from working for a competing hospital. While these clauses usually are restricted to a specific geographic area and for a certain time period, physicians bound by a non-compete clause argue that they limit career growth and force them to leave their communities if they wish to seek other employment. Hospitals, in contrast, argue that a ban on non-compete clauses would make it difficult to retain the physicians they recruited and trained when workforce shortages are at an all-time high.

When

The FTC accepted public comments on its proposed rule to ban non-compete clauses until April 19, 2023. There is a mandatory 180-day notice period that follows the comment period, so if the rule is finalized, it will not go into effect before mid-October 2023. Any attempt to ban non-compete clauses will invite litigation, likely delaying a ban on non-compete clauses for years. It is possible, if not probable, that a court would impose a temporary injunction before a change of this magnitude could go into effect, pending a decision on the merits.

Highlights

• In the proposed rule, the FTC admitted that nonprofit hospitals, which constitute more than half of all hospitals, would be exempt from a non-compete ban. About 75% of physicians work for hospitals, where non-compete clauses in employment contracts are common.
• Hundreds of physicians submitted comments to the FTC in support of the rule, complaining about being stuck in jobs because they were restricted from working for competitors. The American Hospital Association opposed the rule, saying that the FTC does not have the authority to enforce its proposed rule and asked the agency to withdraw the rule in its entirety.
• A patchwork of states already enforce some ban or restriction on the use of non-competes in the healthcare employment context.
• Congress is also considering proposed legislation to ban non-compete clauses, as well as a proposal that would give the FTC authority to investigate non-profit hospitals for suspected unfair competition activity.

Bottom Line

Banning non-compete clauses is controversial, as evidenced by the more than 18,500 written comments the FTC received on its proposal. A ban on non-competes may increase competition and the earning power of physicians, but it also may further strain workforce shortages and could interfere with ongoing care if physicians do not or cannot continue providing services to current patients after leaving their practice. This is a wait-and-see moment; courts will continue to enforce state law and contractual agreements unless or until there is a federal law or rule that changes the status quo.

Source

Federal Trade Commission. Non-Compete Clause Rulemaking. Accessed May 12, 2023.

Congressman Mike Gallagher Representing the 8th District of Wisconsin. Reps. Gallagher, Peters, Eshoo Introduce Bill to Protect American Workers Against Noncompete Clauses. Accessed May 12, 2023.