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FTC Implements Nationwide Ban on Non-Compete Agreements, Stirring Major Changes in Healthcare Sector

FTC Rule to Prohibit Non-Compete Clauses Can Impact Healthcare Industry Employment and Operations

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May 1, 2024  – On April 23, 2024, the Federal Trade Commission (FTC) voted to enforce a nationwide ban on non-compete agreements. The vote follows extensive public discourse that included more than 26,000 comments during a 90-day comment period. This regulatory change is expected to reshape the employment landscape across various sectors, especially within the healthcare industry.

The healthcare sector, where non-compete clauses have traditionally played a crucial role in workforce management, could see big changes. These agreements have commonly restricted healthcare professionals’ ability to move freely among employers by tying them to one employer and limiting their options within local communities. The FTC argues that getting rid of these agreements will allow for greater job mobility for healthcare workers and can also potentially reduce healthcare costs by creating a more competitive employment environment.

Despite the FTC’s intentions, the rule has met with resistance from several industry groups within healthcare. Opponents argue that non-compete agreements are vital for the recruitment and retention of a skilled healthcare workforce, and that without such agreements, healthcare institutions might struggle to maintain stability with their staff. This could impact consumers, as frequent turnover in the industry would have them seeing different caregivers. 

In addition, the FTC is scrutinizing entities that claim non-profit status for tax purposes and is looking into the true operational nature of organizations to ensure compliance with the new rule. Many healthcare organizations operate under a non-profit status, but that isn’t always the case. This could lead to significant implications for numerous organizations within the healthcare sector that operate under non-profit status but may function more similarly to for-profit entities.

The rule includes exceptions, notably for non-compete agreements that are part of the bona fide sale of a business entity, which may still be enforceable. This is relevant for physicians who have sold their practices, where non-compete clauses concerning the sold practice are likely to remain valid under federal law.

While voted on by the FTC, the new rule faces legal challenges. A lawsuit was filed by business groups led by the U.S. Chamber of Commerce, and this could delay or block its implementation. Despite potential legal roadblocks, the rule’s introduction has sparked a broader discussion about employment practices, with several states already imposing their own restrictions on non-compete agreements, particularly for physicians.


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