How proposed FTC ban on non-compete agreements could affect doctors

It is not as if non-compete agreements were standing on the most solid ground, to begin with. But by issuing a Notice of Proposed Rulemaking (NPRM) in January 2023, the Federal Trade Commission (FTC) has set its sights on non-compete clauses, with an eye on abolishing—or cutting down—this practice.^[]

If the ruling goes through, some physicians may feel the effects of a ban on non-competes, although the FTC’s move will likely impact low-wage workers more, according to an article published by the Federal Reserve Bank of Minneapolis.^[]

Potential windfall for workers

The FTC can implement trade regulation rules that specify which acts or practices are unfair or deceptive. According to an FTC press release, its proposed rule on non-competes would “ban employers from imposing non-competes on their workers,” including independent contractors, as they are an “unfair method of competition.”^[]

The rule would be retroactive and would rescind existing non-compete clauses with workers.

Public feedback wanted

The FTC can decide to issue a final regulation after gathering feedback from the general public, with actions informed by its input.

Even if the ruling comes to fruition, however, it could be caught up in litigation for years, as reported in an article published by the American College of Emergency Physicians (ACEP).^[]

Other options possible

Alternatives to a unilateral ban on non-compete agreements are also on the table.

“Under a rebuttable presumption approach (which is one of the main alternatives the FTC presents in the [regulation]), the presumptive policy would be that non-competes would not be allowed, but an employer could potentially argue to include or keep in employee contracts—based on certain conditions,” the ACEP wrote.

“For example, some states, like Washington, create salary thresholds to limit when non-compete clauses are permissible,” the ACEP added. The FTC discusses an alternative in which non-compete clauses would be “banned for everyone who makes less than $100,000 per year, but there would be a rebuttable presumption to workers who earn more than that amount per year.”

Backstory for proposed rule

This NPRM has precedent; it follows a July 2021 Executive Order (published by The Federal Register) that was issued by President Biden to, in part, “address agreements that may unduly limit workers' ability to change jobs.”^[]

The order further states that “the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC's statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

The status of non-compete agreements varies by state, further weakening their legal standing, according to an article published by Medical Economics.^[]

California, Oklahoma, and North Dakota, for instance, don’t enforce non-competes, whereas Florida doggedly pursues them, with courts dispatched to rewrite and enforce overly broad non-competes.^[]

Defining non-competes

Non-compete clauses block employees from working for a competing employer or forming a competing business following the end of employment. They affect about 18% of American workers—approximately 30 million people, according to the Medical Economics article.

From one vantage point, non-compete clauses can aid employers by limiting wage growth, since workers have less leverage to negotiate wages. But non-competes may make it harder for employers to attract new talent, and they may hamper entrepreneurs in their attempts to start new businesses.

For physicians running a practice that employs other attending physicians, non-competes can backfire if the practice owner becomes derelict in terms of paying fair-market value and providing staff support, benefits, shared coverage, and so forth.

Healthcare professionals may then move outside the radius specified by the non-compete agreement and set up their own shop. According to an expert source quoted by Medical Economics, this newfound competition could drive up the original owner’s labor costs, or impact salaries and incentives needed to attract new physician staff.

Mixed findings in medicine

In the NPRM, the FTC noted that 45% of physicians enter into non-compete agreements but found only mixed findings in the few studies the Commission cited that explore the practice with doctors.^[]

In a study cited in the NPRM, researchers found that while non-compete clauses permit physician practices to assign patients to clinicians, this was linked to greater costs for patients.

One possible explanation for this is a chain of causality tracing back to more stringent enforceability of non-compete clauses resulting in increased concentration and higher consumer prices. Other experts contend that there’s a non-causal relationship between concentration and prices.

Strong opposition

The ACEP has come out staunchly against non-compete agreements. It asserts that non-competes are being used to drive payments artificially low to decrease work opportunities; moreover, they have led to the use of advanced care providers—such as NPs and PAs, and not physicians—to serve patients in greater capacities than their training may allow.

In addition to non-compete agreements, contracts could also contain a host of other restrictive covenants, including indemnification agreements, accelerated termination clauses, elimination of due process for termination, and rules that prevent employees from directly competing for emergency department staffing contracts, as described by a survey respondent quoted in the ACEP article.

While the January 2023 NPRM may not bode well for the future of non-compete agreements, it may take years before any final ruling goes into effect, due to the legal wrangling that is likely to ensue as this clause is debated and battled.

As the battle begins over the Non-Compete Clause Rule, the FTC is soliciting feedback from the general public, which could serve to inform alternatives to a complete prohibition of non-compete agreements.