Court Strikes Down Ban on Non-Compete Agreements, What’s Next for the Healthcare Industry?

Just weeks before it was set to go into effect, a nationwide ban on non-compete agreements was struck down by a Texas federal judge.

As we first wrote about in May, the decision is particularly impactful for the healthcare industry as such agreements are common in physician and mid-level practitioner employment agreements.

Overturning the Ban

Set to take effect September 4 — 120 days after being published in the Federal Register — the court ruled that the Federal Trade Commission (FTC), which was behind the non-compete ban “exceeded its statutory authority in implementing the rule, and the rule is arbitrary and capricious” because it was overly broad.

The proposed non-compete ban has given some in the healthcare industry pause, with some re-thinking their existing policies and some healthcare employees refusing to sign them – regardless of whether there is a ban.

The Court Challenge

The lawsuit that led to the ruling was brought by The Chamber of Commerce of the United States, Business Roundtable, the Texas Association of Business and the Longview Chamber of Commerce.

The FTC estimated that approximately one-in-five American workers — or about 30 million — is subject to a non-compete and called them “unfair methods of competition.”

Pros and Cons of a Non-compete

At the time the proposal was announced, numerous physician groups chimed in. The American College of Surgeons (ACS) noted that non-compete agreements “can have a detrimental effect on patient care by affecting their access to the best surgeons, as well as on the ability of surgeons to seek their optimal work environment and for hospitals to compete for employment of well-suited surgeons.”

The American College of Emergency Physicians also favored the ban and called non-competes “unfair, exploitative, and coercive because they can restrict emergency physician autonomy and limit otherwise viable employment options.”

In a statement following the ruling, the American College of Emergency Physicians urged the FTC to appeal and stated: “As burnout rates and staffing constraints challenge emergency departments nationwide, restricting physicians’ job options only weakens our health care safety net.”

On the flip side, the American Hospital Association, which represents nearly 5,000 member hospitals, health systems and other healthcare organizations, called it “bad law, bad policy and a clear sign of an agency run amok.”

Chip Kahn, president and CEO of the Federation of American Hospitals, which represents for-profit hospitals, described the FTC rule as a “double whammy.” Upon learning of the court ruling, he stated: “We have been clear from the start that this rule would threaten patient access to care by making it more difficult for hospitals to recruit and retain physicians and invest in training and technology,”

What’s Next?

The court ruling doesn’t necessarily mean the debate is over, the FTC could appeal and if so, depending on how an appellate court may rule, the issue could make its way to the U.S Supreme Court.

Although non-competes remain in effect, healthcare organizations might want to consider existing policies as well as the possibility that lawmakers may look to create laws impacting employment contracts.

Keep in mind that the court decision does not prevent the FTC from taking case-by-case enforcement actions when it comes to non-competes.

How We Can Help

If you have any questions or would like assistance with non-competes, compliance other healthcare law matters, contact us at 305-358-4500 or send us an email to info@vitalehealthlaw.com and let’s discuss how we might be able to assist you.