Noncompete rule could have big impact

The Federal Trade Commission voted last month to issue a final rule prohibiting most noncompete agreements, including for physicians. The rule takes effect 120 days after formal publication but is facing legal challenges that could delay or block its implementation.

The rule could have a big impact on healthcare. Between 37% and 45% of physicians are affected by noncompete agreements, according to the American Medical Association, which supported the new rule.

The FTC does not have jurisdiction over nonprofit entities, so the rule doesn’t apply directly to nonprofit hospitals or medical practices. However, the commission reserved the right to evaluate an entity’s nonprofit status and said some “entities that claim tax-exempt nonprofit status may, in fact, fall under the Commission’s jurisdiction.”

The rule also would not apply to noncompetes tied to the sale of a business, such a physician practice. Those would still be allowed under the FTC rule.

The AMA argued that noncompetes can be especially problematic for residents, fellows and young physicians by limiting their opportunities for advancement and restricting their ability to provide care in economically or socially marginalized communities. It said removing noncompete clauses could improve patient access, enhance the availability of specialist coverage in a community and reduce health inequities by allowing physicians to work for multiple hospitals.

Opponents of the rule argue that noncompetes are necessary to recruit and retain workers, and that the rule creates an uneven playing field between for-profit and nonprofit hospitals.

“The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals’ ability to care for their patients and communities,” said Chad Golder, general counsel of the American Hospital Association.

Jeremy Hill, director of the Center for Economic Development and Business Research at WSU, said the rule, if it stands, will push employers to do more to make employees want to stay. Foulston Siefkin law firm in Wichita said in an issue alert last year that healthcare organizations should consider using nondisclosure and confidentiality clauses and/or nonsolicitation clauses as alternatives to noncompetes.