Providers join call to stop FTC’s noncompete ban

Hundreds of national associations, including the American Hospital Association, have called on the Federal Trade Commission (FTC) to stay the effective date of the upcoming ban on noncompete clauses in employment agreements.

The FTC released the Non-Compete Clause Final Rule (89 Fed. Reg. 38,342-38,506, “Noncompete Rule”) in April, banning the use of most noncompete agreements between employers and workers, including those in healthcare. The rule is slated to take effect on Sept. 4, 2024, if recent court cases challenging the ban do not postpone or prevent enforcement.

The noncompete ban has generated controversy, with some organizations, including the US Chamber of Commerce, filing legal challenges against the final rule. Challengers generally agree that the FTC overstepped its legal authority by issuing the Noncompete Rule and the ban is arbitrary and capricious, terms often used in administrative law to show a law is not based on facts or reasonable judgment.

A coalition of 230 national associations is asking the FTC to stay the effective date of the Noncompete Rule to allow for the legal system to make a call on the ban.

“A stay would be a prudent step. The impending effective date of the Noncompete Rule and lack of Commission guidance on key pieces of it –  such as what it means to be in a policymaking position or how the Commission will apply its ‘functional’ test – has creating substantial uncertainty for businesses and employees around the country,” the groups wrote in a letter to FTC Commissioners.

The coalition cited the FTC’s previous delay of the Combating Auto Retail Scams (CARS) Rule pending litigation. The CARS Rule, which prohibits misrepresentations about material information in the auto industry, was delayed because of misunderstandings around the rule and uncertainty, the coalition explained.

“A brief, voluntary delay would provide invaluable certainty as to the Rule’s potential effective date and conserve significant resources,” they said regarding the Noncompete Rule.

Additionally, the coalition said the Noncompete Rule is already “imposing significant costs and uncertainty on the U.S. economy” as businesses identify noncompete agreements and notify employees and former employees about upcoming changes to employment agreements. Companies are also incurring legal costs as they explore other ways to protect their investments, the coalition explained.

A brief delay of the effective date would be cost-effective and provide the certainty businesses need, whether the Noncompete Rule is enjoined or pushed back, they said.

Noncompete clauses are common in employment agreements between healthcare organizations and their employees. The clauses have become even more prevalent as healthcare merger and acquisition activity has accelerated over the last decade, creating larger integrated health systems across the country.

The clauses help to protect an organization’s investment in a clinician, which can cost the healthcare organization hundreds of thousands of dollars to recruit and onboard. Organizations may also create care teams and purchase equipment around a particular hire to build a patient base and ensure team-based, coordinated care.

However, the American Medical Association has voted in the past to oppose noncompete agreements for physicians employed by hospitals, arguing the clauses limit career opportunities and advancements and limit access to care, especially in underserved areas.