For healthcare providers and practitioners, the rules surrounding non-competition agreements have evolved rapidly over the last two years, and that evolution accelerated even more this month.  Over the past 18 months, states and the federal government enacted several new laws that substantially limit when healthcare entities can enforce non-competes.  Then, on April 24, the Federal Trade Commission issued a rule that will bar most non-competes in the U.S. if it survives legal challenges (albeit no sooner than late August 2024).  This creates yet another potential hurdle for a healthcare entity seeking to enforce a non-compete.  Going forward, healthcare entities wishing to utilize non-competes with their employees and contractors should ensure they account for all of the following developments.  

The FTC’s rule would bar many healthcare entities from using non-competes, but it arguably would not restrict tax-exempt hospitals and other non-profit providers. 

The FTC rule would cover many healthcare employees in the U.S., but not all of them.  In terms of employer coverage, the rule applies to for-profit healthcare systems, private medical practices, private equity funds, and most other entities that are “organized to carry on business for [their] own profit or that of [their] members.”  The rule does not categorically exempt non-profits, tax-exempt hospitals, and other tax-exempt entities, but these entities will have a good argument that they fall outside the rule’s coverage by its terms.   

From a worker perspective, the rule generally covers non-competes with any “person.”  If the rule covers an employer as set forth above, then it will cover effectively all of their employees, including physicians, nurses, counselors support staff, administrative employees, custodial and maintenance employees, and effectively any employee performing manual work.  One key nuance is that the FTC rule exempts certain “senior executives,” i.e., individuals who earn more than $151,164 annually and serve in policy-making positions.  Thus, even if a rule applies at the employer level, it may not apply to certain senior administrators, department heads, and others in higher level management roles.  The second key exception is that the rule does not apply to non-competes entered into in connection with the sale of a business. 

The FTC rule is facing serious legal challenges, and will not apply at least until 120 days after it is published in the federal register (which currently is scheduled to occur on May 7, which would make the effective date September 4, 2024). The U.S. Chamber of Commerce almost immediately filed a lawsuit challenging the non-compete ban, arguing that the FTC does not have authority under the FTC Act to make rules regulating unfair methods of competition, and that under the U.S. Supreme Court’s “major questions doctrine,” the final rule must be vacated because the FTC acted without clear Congressional authorization. Given the Supreme Court’s increasingly skeptical view of administrative rulemaking of late, these arguments may find favor should they reach the Supreme Court. The Chamber also challenges the final rule on other grounds, including that it impermissibly applies retroactively to existing non-compete agreements, and that it is arbitrary and capricious, as the FTC issued the final rule based on limited and flawed studies without sufficient consideration of the concerns and alternatives raised during the public comment period. Thus, there is a good chance that the rule will not survive legal challenges, and interested parties in the healthcare space should monitor the status of these challenges.