The FTC's Ban on Non-Compete Agreements and Its Ripple Effect on Healthcare
How Will the Healthcare Landscape Change with the Removal of Non-Compete Clauses?
THE VBP Blog
June 20, 2024 – In April 2024 the Federal Trade Commission (FTC) announced a rule to ban non-compete clauses in employment contracts across the United States. This ban can significantly alter the landscape of employment, especially in the healthcare industry. FTC designed the ban to enhance job mobility and wage growth by allowing employees the freedom to move between jobs without restrictions. However, for the healthcare sector, which is facing staffing challenges, this change could create problems and providers are not on board. In this blog, we will help you understand the non-compete bans implications for healthcare.
As advocates, we are encouraged by the prospect of caregiver wages and job satisfaction increasing. But we are concerned there could be unintended consequences, namely disruption in care for consumers. To learn more about our advocate’s perspective, check out our full write up at the end of the blog to hear more of our thoughts!
Key Provisions in the FTC Non-Compete Ban
A non-compete clause prevents employees from joining competitors or starting similar businesses within a certain period after leaving a company. These are common in employment contracts across the country and have been justified as necessary for protecting investments in employee training and safeguarding sensitive business information. While five states already prohibit non-compete clauses, the FTC’s ban is expected to impact 30 million people across the country, with the majority of health care entities and employers being subjected to the rule.
The non-compete ban marks a significant shift in employment law. It affects how businesses, including those in healthcare, can manage their workforce. The rule bans non-compete clauses in employment contracts and makes it illegal for employers to enforce or even suggest such restrictions. It also applies universally across all industries and states and supersedes any state laws that allow non-compete agreements.
Employers are required to rescind existing non-compete agreements and must inform employees that these agreements are no longer effective when the rule goes into effect on September 4, 2024. This move is expected to free current employees from restrictions that might limit their career opportunities.
There are some exceptions to the rule. It primarily targets non-compete clauses and does not generally apply to other types of restrictive covenants, such as non-disclosure agreements (NDAs) and non-solicitation agreements. In addition to that, the non-compete ban does not apply to some nonprofit healthcare organizations like tax-exempt hospitals and health systems.
In terms of enforcement, the FTC will oversee the enforcement of this rule, with the potential for significant penalties for violations. Employers are expected to comply by not only stopping the inclusion of non-compete clauses in new contracts but also by actively removing such clauses from existing agreements.
Impact of the Non-Compete Ban on the Healthcare Industry
The Federal Trade Commission’s decision to ban non-compete agreements is going to have a big impact on the healthcare industry. The industry has used these agreements to retain talent and protect business information. Removing non-compete clauses will likely increase job mobility among healthcare professionals and can lead to a labor market where workers have the freedom to move between jobs without restrictions.
While this is good because in theory it can lead to improved job satisfaction and access to better employment opportunities for caregivers, the healthcare sector will likely face challenges in retaining skilled workers. Without non-compete agreements preventing movement of employees, providers in competitive markets like home care and home health may struggle to keep experienced and skilled staff. This can be an issue in healthcare sectors where there is already a labor shortage putting a strain on the industry.
The ban can also increase wage growth as organizations might have to increase compensation and benefits to attract and retain top talent. While this is beneficial for healthcare workers, it could lead to increased operational costs for healthcare facilities. This could put a strain on smaller providers, which is something that will need to be monitored.
Overall, the FTC’s ruling introduces both opportunities and challenges for the healthcare industry and there are mixed opinions amongst organizations whether or not this rule will be beneficial.
General Counsel Chad Golder for the American Hospital Association (AHA) said, “The FTC’s final rule banning non-compete agreements for all employees across all sectors of the economy is bad law, bad policy, and a clear sign of an agency run amok. The agency’s stubborn insistence on issuing this sweeping rule — despite mountains of contrary legal precedent and evidence about its adverse impacts on the health care markets — is further proof that the agency has little regard for its place in our constitutional order.”
On the other hand, the American Academy of Family Physicians (AAFP) praised the final rule and encouraged further expansion of the ban to nonprofit entities. AAFP President Steven P. Furr stated, “We are also encouraged to see that the FTC intends for this ban to extend to many nonprofit entities. Nonprofit health systems often have significant financial assets and employ a large portion of physicians and clinicians. They should not be permitted to continue to restrict patient access and physician choice in employment.”
While there are mixed feelings, one thing is certain. Organizations will need to adapt, should the rule survive legal challenges and go into effect later this year.
Consumer Impact Could Also Be Mixed
While there are mixed reactions among organizations, the FTC’s decision to ban non-compete agreements could also have mixed implications for consumers. With increased mobility among healthcare professionals, consumers might see benefits from a more competitive labor market. As healthcare providers work to attract and retain top talent, there could be a push to improve working conditions and increase staffing levels. This often translates to better quality of care.
In addition to that, the movement of skilled professionals amongst providers could lead to greater innovation and the sharing of best practices. Specialists who previously might have been restricted from moving freely can bring new techniques and insights to other organizations. This has the potential to improve outcomes for consumers and can expand access to high-quality healthcare.
On the flip side, the constant movement of healthcare workers might lead to issues with continuity of care. Consumers could find themselves seeing different doctors or caregivers more frequently, as workers potentially change jobs more often in response to better offers or conditions elsewhere. This could disrupt consumer relationships with physicians or caregivers, which are crucial for managing chronic conditions and providing personalized and compassionate care.
Finally, while increased competition for healthcare professionals might drive up wages, this could also lead to higher healthcare costs. Facilities that spend more on staffing might need to balance their budgets by increasing the prices of their services, which could be passed on to patients in the form of higher co-pays, premiums, or out-of-pocket costs. Value-based payment models are something that can mitigate this risk, as providers do not charge single fees for their services and is something that should be carefully considered.
Overall, while the ban on non-compete agreements promises increased freedom and opportunities for healthcare workers, the impact on consumers will depend on how these shifts affect the broader healthcare landscape.
Advocates Perspective
The FTC’s decision to ban non-compete agreements has vast implications for the healthcare industry and consumers. As advocates, we like how the new rule is designed to enhance job mobility which can potentially lead to better job satisfaction, increased competition for talent, and overall improved patient care. However, the non-compete ban has some implications and that cannot be overlooked. There is a potential for increased operational costs and issues with continuity of care that can happen as caregivers take advantage of new opportunities for mobility. Unfortunately, this can lead to disruptions in consumer-caregiver relationships and an increase in healthcare costs. As we move forward, it is essential for organizations to find effective ways to retain talent without relying on non-compete clauses. The full impact of this ruling will unfold over time, as there are already lawsuits seeking a stay of the ban. We will keep tabs on the progress of the FTC ban, subsequent lawsuits, and what it ultimately means for consumers.
Onward!
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About the Author
Fady Sahhar brings over 30 years of senior management experience working with major multinational companies including Sara Lee, Mobil Oil, Tenneco Packaging, Pactiv, Progressive Insurance, Transitions Optical, PPG Industries and Essilor (France).
His corporate responsibilities included new product development, strategic planning, marketing management, and global sales. He has developed a number of global communications networks, launched products in over 45 countries, and managed a number of branded patented products.
About the Co-Author
Mandy Sahhar provides experience in digital marketing, event management, and business development. Her background has allowed her to get in on the ground floor of marketing efforts including website design, content marketing, and trade show planning. Through her modern approach, she focuses on bringing businesses into the new digital age of marketing through unique approaches and focused content creation. With a passion for communications, she can bring a fresh perspective to an ever-changing industry. Mandy has an MBA with a marketing concentration from Canisius College.