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Are Non-Competes Out the Window?

By: Kaitlyn MacLeod

Not just yet. Recently, the Federal Trade Commission (FTC) proposed a new rule that would ban post-employment non-competition agreements for all workers, including independent contractors, in nearly all workplaces. The proposed rule falls under Section 5 of the Federal Trade Commission Act, which bans unfair methods of competition. This proposed rule would greatly impact the entire healthcare industry.

Most entities in healthcare utilize some form of non-compete agreements. Health insurance companies, TPAs, and PBMs regularly use non-competes to ensure former employees do not become local competition. Employment agreements for physicians are particularly restrictive, with some 40% containing non-compete provisions. In these cases, employers are particularly concerned about physicians setting up competing practices, especially after they might have heavily invested in a doctor’s training and career building. Tom Giella, Chair for the management consultancy and executive search firm Korn Ferry’s healthcare services practices, noted that “Banning non-competes will make the healthcare labor market more fluid and competitive, and salaries would probably go up.”

What does this mean for your business?

Companies will need to rethink how they are protecting their business. There has been a recent trend of state laws placing restrictions on non-compete agreements, including in California, North Dakota, and Oklahoma. If this proposed federal rule goes into effect (there are likely to be many challenges to this proposal in the coming months), current non-compete agreements in any state will need to be rescinded prior to the compliance date of the rule. The FTC has already provided model language for rescissions if this rule moves forward, found on page 214 of the proposed rule here.

All is not lost! While the proposed rule bans all non-competes, it does not yet ban other restrictive employment covenants, such as specific non-solicitation agreements, non-disclosure agreements, and proprietary business information covenants. These provisions may become the primary means by which businesses protect proprietary information and client relationships. We will have to wait and see whether this proposed rule will go into effect and how our industry reacts – in the meantime, businesses should take steps to protect their interests.