In April, the Federal Trade Commission (FTC) voted to ban noncompete agreements. The rule could have a substantial impact on IR businesses—if it goes into effect.
According to Jason Greis, a healthcare attorney with Benesch law firm, the ban will likely have no impact on physicians for the foreseeable future and recommended a “wait and see” approach.
The FTC final rule seeks to prevent an “unfair method of competition” wherein an employer enters, or attempts to enter, into a noncompete clause with a worker, maintains a noncompete clause, or makes the worker believe there is a noncompete clause that cannot be enforced in good faith.
“This rule was absolutely made with physicians in mind,” said Mr. Greis, who presented an update during an SIR Business Institute roundtable on May 16, hosted by Business Institute co-course directors Alan Hoffman, MD, FSIR, and Mary Costantino, MD, FSIR. “Impairing physicians’ ability to move and change jobs was a substantial concern raised while drafting the rule,” Mr. Greis said.
The FTC estimates that the final rule will impact one in five U.S. workers and result in reduced healthcare costs, new business formation, a rise in patents and higher worker earnings. However, it may have wider implications.
“This is a very broad ban,” Mr. Greis said, pointing out that it could shift the landscape and provide scrutiny over nonsolicit agreements, severance agreements, nondisclosure and confidentiality agreements, and contracts that require the repayment of education costs.
“It’s standard for physician contracts to require employees to provide at least 6-months’ notice of termination because your employer has to find time to hire and train someone,” Mr. Greis said. “But could a 1-year notice period be considered a de facto noncompete clause?”
He also questioned the use of recruitment and retention bonuses—if an employee is brought in, given a hiring bonus or education costs and then leaves, would recoupment be considered an impermissible de facto noncompete clause?
There are several situations that are explicitly exempt from the final rule, including noncompete clauses regarding the selling of a business, grandfathered senior executives and employees of nonprofits.
“If you are an IR contracted through a nonprofit hospital, this ban will not impact your noncompete at all,” Mr. Greis said.
Though the rule is likely to increase physician wages, Mr. Greis pointed out that this may further squeeze healthcare organizations, resulting in lower profitability if a small practice cannot keep pace with the ever-increasing cycle of wage increases. It may also inadvertently lower the value of certain contracts such as medical directorship agreements.
This concern was echoed by Dr. Costantino, who added that smaller private practices and office-based labs may be particularly hurt.
“Without a noncompete, you’d want to incentivize employees to stay by giving them equity, for example. But how can I be sure someone will be a good fit as a partial owner? Should I keep proprietary details and referral patterns from my employees until I’m sure they won’t go across the street and open another office-based lab?” she asked. “In the long run, this will hurt the whole private practice landscape, because employees should have access to this knowledge and learn the tools to success.”
However, Mr. Greis urged IRs not to worry just yet. While the final rule is slated to go into effect on Sept. 4, three lawsuits have already been filed to challenge it. Mr. Greis expects the cases to be appealed to the U.S. Supreme Court and believes that there is a significant chance the final rule will be struck down due to the major questions doctrine, which holds that if an agency such as the FTC passes a rule with substantial economic or political impact, Congress must provide the agency direct authority to do so.
“The final rule is likely to be stayed,” Mr. Greis said, “but even if not enacted, it has started an accelerating national trend resulting in the passage of many state-level bans and restrictions.”
According to Mr. Greis, nine states are currently proposing a complete ban on noncompete clauses, and there are 27 state bills currently in the works regarding healthcare noncompetes. Last summer, Minnesota passed a complete ban on noncompetes—the first noncompete ban in over 100 years.
New York had a noncompete bill vetoed by the state governor recently, and other states have enacted regulations regarding notice requirements and compensation thresholds. Thirty-seven states have made changes to their restrictive covenant statutes in the last 7 years.
While the final rule is unlikely to impact employees in the near future, for those who want to stay abreast of changes, Mr. Greis recommended going to your state medical board, attorney general, or local labor and employment attorney for guidance and updates.
“I would not make any practice or employment changes based on this final rule,” Mr. Greis said. “If you’re in the middle of an issue with a noncompete—either trying to enforce one or break one—I would recommend looking for a business solution. These fights are expensive and complicated. If you can find a business solution to a legal problem, you’ll likely have an easier time.”
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