Last month, the Federal Trade Commission (FTC) issued a final rule to promote competition. The FTC stated that noncompete agreements will be banned nationwide, protecting workers' freedom to change jobs, increasing innovation, and fostering new business formation. While the American Academy of Family Physicians (AAFP) was encouraged by the final rule, the American Hospital Association (AHA) opposed it.
The FTC stated in an April 23 press release that “Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business.”
“The Commission found that noncompetes tend to negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers,” the news release stated.
Healthcare Innovation examined the different arguments concerning the use of noncompete agreements and the effect the final rule could have on the healthcare industry. Representatives of AAFP, Fraum Center for Restorative Health, Lerch, Early, & Brewer, Munsch Hardt Kopf & Harr, P.C., and the Institute for Local Self-Reliance (ILSR) shared their perspectives.
Steven P. Furr, M.D., AAFP president, explained the various reasons health systems use noncompete agreements. “Some employers in the health care sector use noncompetes as a tool to retain their workforce,” he said. “In some cases, noncompetes can help employers retain highly trained staff with institutional knowledge and protect care continuity for patients.”
“However,” Furr noted, “the bottom line is that noncompete clauses may be undermining progress toward improving individual and population health. This is especially true for family physicians, who provide continuous, comprehensive care for patients over their lifespan.”
Furr also went on to explain, “Noncompete clauses can aggravate healthcare workforce shortages by limiting the number of qualified individuals available to provide care within a community or geographic area. With fewer clinicians, patients may have to wait longer to receive care or travel further distances to access critical services. This can ultimately result in worse health outcomes and a less efficient healthcare system.”
Not only that, Furr noted, but noncompete agreements may also contribute to burnout by forcing clinicians to stay in unsustainable work environments.
“One of the biggest problems with noncompete causes in healthcare,” Furr said, “is that….a physician may actually have to leave a whole region or a state. That disrupts the patient-physician relationship and forces physicians to leave an area where they might prefer to practice.”
Furr believes that the final rule is a win for workers. “It will put patients first by creating a more level playing field for family physicians who work in all practice settings, including small and independent practices, who may not have the resources to recruit and retain new physicians.”
Furr expressed hope that the elimination of noncompete clauses will encourage employers to pursue more collaborative ways to retain physicians and become employers of choice while preserving long-term, meaningful patient-physician relationships.
Henry Criss, CEO of Fraum Center for Restorative Health, understands the concerns regarding using noncompete clauses in employment contracts. He considers the clauses vital for his organization’s operations and the welfare of patients. “It's important to recognize that hospitals and medical groups invest significantly in the training and development of healthcare professionals,” Criss stated.
“For our practice,” Criss explained, “this includes proprietary practices and innovative treatment methodologies that set us apart in a highly competitive industry. Our noncompete clauses are designed to protect these investments and the intellectual property that is integral to our unique care delivery model.” Without these protections in place, Criss added, “we risk losing not only our competitive edge but also the stability and quality of care that our patients rely on.”
“By mitigating the risk of immediate turnover to direct competitors,” Criss noted, “we ensure continuity of care for our patients, which is crucial in building long-term patient-provider relationships. This stability is especially important in healthcare, where frequent changes in medical staff can disrupt patient care and trust.”
Jessica Summers, an employment and labor attorney at Lerch, Early, & Brewer, noted that if the new rule goes into effect, it will significantly impact how employers protect their business interests and information. “There have already been multiple lawsuits filed to challenge the rule, including one by the U.S. Chamber of Commerce,” Summers noted.
“If the new rule goes into effect as planned,” Summers explained, “employers will no longer be able to ask any workers to sign noncompete agreements or their functional equivalents regardless of their level of seniority. Noncompete agreements with senior executives that predate the effective date of the new rule can remain in effect, but noncompete agreements with any other employees may no longer be enforced, and employers will be required to provide a notice to these employees that the agreements will no longer be effective or enforced.”
“The main point of contention in the healthcare context is whether the final rule applies to non-profit healthcare organizations,” Pooneh A. Momeni, shareholder at the Houston-based law firm Munsch Hardt Kopf & Harr, P.C., explained. “The FTC does not have jurisdiction under Section 5 to regulate non-profits.”
“However,” Momeni added, “as the FTC explains in the final rule, tax-exempt status alone does not exempt organizations from the FTC’s jurisdiction. To qualify for the jurisdictional exemption, there must be an adequate nexus between the organization’s activities and its charitable purpose, and net proceeds must be devoted to public, not private, interests.” Momeni expects the FTC to examine whether non-profit health systems qualify for the exemption.
Stacy Mitchell, co-executive director at the Institute for Local Self-Reliance (ILSR), said in a statement, “While noncompetes harm workers by limiting job mobility and depressing wages, they also give large firms yet another way to hobble smaller competitors and take market share.”
“If noncompete agreements become a thing of the past,” attorney Summers cautioned, “they are likely to be supplanted by more rigorous non-disclosure and non-solicitation agreements.”
