How FTC's noncompete agreements rule could impact healthcare

January 24, 2023 9:14 AM | Becca Liebers (Administrator)

Fierce Healthcare – By Frank Diamond | Jan 6, 2023

Noncompete agreements have become so ubiquitous that a proposed rule published by the Federal Trade Commission (FTC) yesterday will affect almost all industries, experts say.

Healthcare will be no exception, Carrie Amezcua, an attorney with the law firm Buchanan Ingersoll & Rooney, told Fierce Healthcare. She said healthcare industry executives should keep a close eye on the debate about the rule.

The public has 60 days to submit comments before the FTC can make it final.

“It could still change—it could still be challenged actually—because it goes too far from what the FTC has the authority to do,” said Amezcua, who usually represents employers in disputes over noncompete agreements.

Backlash to the rule has already begun. In a statement, the U.S. Chamber of Commerce called the regulation "blatantly unlawful."

The rule falls under Section 5 of the FTC Act, which bans unfair methods of competition. So, not-for-profit healthcare systems would not be covered by the rule, said Amezcua.

“For physicians, if they are working directly for a hospital, and that hospital is a nonprofit, that hospital is not actually covered by the FTC act. So that hospital is not subject to this rule,” said Amezcua.

About 45% of primary care physicians employed by group practices are bound by noncompete agreements, according to one survey (PDF) by researchers from various universities. 

Amezcua added: “Insurers are not exempt from the FTC Act. They would be subject to this rule in its final form. And right now, it is written as a complete ban on noncompete agreements, post-employment. You could still have a noncompete during your employment. But you can’t have the provision that says you can't work for another company for two years after you leave.”

Once used to keep high-level executives and salespeople from running off to competitors with sensitive and proprietary company information and clients, the agreements have evolved to a point where many workers making minimum wage at fast food establishments aren’t able to change jobs because they’d signed a noncompete agreement.

The FTC said employees often agree under duress: Either sign or lose your job.

Elizabeth Wilkins, the FTC’s director of the office of policy planning, said in a statement that “the proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”

If enacted, the rule would boost wages by about $296 billion a year, according to the FTC.

Echoing Amezcua’s remarks about FTC overreach, Sean Heather, the Chamber's vice president for international regulatory affairs and antitrust, said in the statement that “Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.”

Kristen Limarzi, a partner at Gibson, Dunn & Crutcher, was once a senior official in the antitrust division of the Department of Justice. Limarzi told Fierce Healthcare that she’s not convinced by the economic research the FTC used to justify the rule.

Limarzi said that “FTC Commissioner Christine Wilson argued in her dissent that the empirical evidence is more mixed and that studies show noncompete provisions can incentivize employer investment in things like worker training that ultimately benefits both employers and workers. The impact of a noncompete in any particular industry is likely quite fact specific. But the FTC rule would impose a nationwide ban.”

But Heather also said that “attempting to ban noncompete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition.”

However, evidence seems to be mounting that states will not side with the U.S. Chamber of Commerce when it comes to noncompete agreements, and in fact, might impose even more restrictions than the FTC rule would.

The proposed rule “is a floor and not a ceiling,” said Amezcua. “So, some states have even more restrictions right now, like California, on noncompete agreements. That would stay and be enforceable regardless of what the final rule says.”

North Dakota and Oklahoma also, in effect, ban noncompete agreements. Some states—such as Illinois, Colorado and New Jersey—have not out-and-out banned noncompete agreements yet have nonetheless made them much harder for employers to defend.

New Jersey legislators introduced a bill that caps noncompete agreements at a year post-termination and would make employers pay the former employee their full salary, including benefits, for that year unless the employee had been fired for misconduct.

In other words, everybody—not just the top executives making millions of dollars—would get a golden parachute, or at least be afforded a soft landing.

In a tweet, President Joe Biden praised the rule.

"For decades, I’ve fought for the notion that if your employer wants to keep you, they need to make it worth your while with good pay and benefits," Biden said in the post. "Consistent with my Executive Order, today's FTC announcement to limit non-compete agreements is a huge win for workers."

Fierce Healthcare reached out to America’s Health Insurance Plans, the Alliance of Community Health Plans, the American Medical Association and the Association for Community Affiliated Plans for comment on the potential rule's impacts on the industry and had not received a response at the time of publication.

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