Healthcare Employers May Soon Focus on Nonsolicitation Agreements in Wake of FTC Announcement

The Federal Trade Commission (FTC) issued a final rule Tuesday that will ban noncompetes nationwide. The ruling, which was proposed in January 2023, is a cause for celebration for many, and a reason to worry for others. The initial proposal received over 26,000 comments in the 90-day period, 25,000 of which were in support of a noncompete ban, according to the FTC’s website.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said in a news release. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The U.S. Chamber of Commerce has since sued the FTC, claiming that the FTC’s decision was an “astonishing power grab” in a press release and that the ruling opens up the possibility for the FTC to ban or regulate other business practices.

Gregory P. Brown, J.D., spoke with Managed Healthcare Executive and provided insights on how the ruling may affect the healthcare world. Hill Ward Henderson is a commercial-focused firm of over 100 attorneys that represent public and private businesses. Brown has been practicing for nearly 30 years and specializes in business partnership disputes such as noncompetes and trade secret protection.

Is this announcement a long time coming?

I think universally people assumed that a rule was going to be enacted.

This was clearly a very political move. The commission voted down party lines, three Democrats voted in favor of the rule, and two Republican appointees voted against it.

Who will be most affected by this ruling?

I would say, insurance executives, client facing insurance folks, that's where you're most likely to see the issues. I think [the rule] is kind of poorly drafted and I think what it's intended to do is address a problem that doesn't really exist. If you read some FTC publications associated with the rule, they talk about security guards being subject to enforcement action. If that happens, it happens rarely. The types of folks that tend to see enforcement actions are senior-level executives or client-facing employees like salespeople.

If they can’t use noncompetes, what legal steps might employers take to protect themselves?

A noncompete comes in a bundle of restrictive covenants. Typically, you will have a noncompete, a nonsolicitation, antipiracy and confidentiality provisions. If this rule holds up, I think you're going to see health-related organizations trying to enforce a nonsolicitation policy as opposed to a noncompete agreement. The rule doesn't speak to nonsolicitations and anti-piracy.

What outcomes can be expected?

We're ready for a little bit of chaos associated with interpreting this. There's going to be a lot of healthcare organizations and hospital doctor groups that are trying to figure out what their obligations are and what their restrictive covenants can look like with their physicians.

It kind of remains to be seen how everything will shake out.