Q: I work at a practice that employs physicians with Non-Compete Agreements. What is the status of the FTC’s proposed rule on Non-Compete Agreements?
A: In January 2023, the Federal Trade Commission (FTC) proposed a rule which would essentially render all non-compete clauses and agreements (NCAs) unenforceable against employees. On April 23, 2024, the FTC voted to approve the rule and published it in the Federal Register on May 7, 2024. The rule will go into effect one-hundred and twenty (120) days after it was published, making the effective date September 4, 2024.
The new rule bans all existing and future NCAs on the basis that they reduce competition and limit flexibility and wages for employees.
While the new rule has been approved by the FTC it currently faces challenges in the courts. In a case filed in a Federal Court in Texas, Ryan LLC v. Federal Trade Commission, the Court granted a preliminary injunction, which stays the effective date of the rule, but only as it applies to the specific plaintiffs in that case. The Court projects to have a final ruling by August 30, 2024, which could provide greater clarity for whether the rule will face a stay of the effective date nationwide.
Q: Are there any exceptions to the rule?
A: Yes, there are some limited exceptions to the rule. The most notable exceptions to the rule include: 1) existing agreements for senior executives, 2) non-competes entered into in connection with the bona fide sale of a business, and 3) non-competes enforced where the cause of action accrued prior to the rule’s effective date. The FTC’s rule also does not apply to non-profit organizations.
While the rule may not apply to non-profit health systems, there is no specific exception for health professionals or private health care employers.
Q: How will this impact health care providers and their employees in Monroe County?
A: With Rochester having a robust health care marketplace, career movement for providers within the area is not uncommon. Before implementation of the rule, employers could choose to include NCAs as terms of employment. Typically, these NCAs provide industry, distance, and time restrictions on the employee, which limit their ability to change jobs. The FTC’s rule aims to eliminate these restrictions.
Employers should be aware that if the FTC’s ruling does go into effect, current NCAs do not need to be formally revoked, but they are required to notify employees that existing NCAs are no longer enforceable as of the effective date. Also, employers of health care professionals should update any existing forms or contract templates that include an NCA, as to avoid unintentional non-compliance with the new rule.
If the rule stands, it could lead to more competitive salaries and benefit packages for employees. On the other hand, while retention of employees could be more difficult, it may be easier to find replacements for employees that choose to pursue new opportunities. New laws and regulations usually come with unintended consequences and this new rule is worth closely monitoring.
Reprinted with permission from the August/Sept 2024 issue of The Bulletin from the Monroe County Medical Society and available as a PDF file here.
Tyler J. Wilson is an attorney in Underberg & Kessler LLP’s Litigation and Labor & Employment practice groups. He can be reached at twilson@underbergkessler.com or 585.258.2814.
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