Non-compete Agreements Remain Legal in Most States, For Now, as FTC Ban is Struck Down
Earlier this year, the Federal Trade Commission (FTC) issued a Final Rule aimed to prohibit most employers from enforcing non-compete agreements with employees or independent contractors. Scheduled to take effect on September 4, 2024, the rule represented a major shift in employment law, particularly within the healthcare sector where employed healthcare providers are routinely subject to post-employment non-competes. As private equity and hospital-affiliated medical groups drive consolidation, these agreements have become more expansive, often covering large geographic areas and multiple office locations.
However, a court ruling in Texas on August 20, 2024, by U.S. District Judge Ada Brown, permanently blocked the agency’s action in Ryan LLC v. Federal Trade Commission, concluding the rulemaking exceeded the agency’s statutory authority. This ruling left non-competes intact in states without any state-based limitations or prohibitions, at least for the time being. We anticipate further legislative and/or regulatory action targeting the scope and breadth of post-employment non-competes; but for now, non-competes are permitted.
Momentum for Change Despite Setbacks
Despite this legal setback, we see that many in the legal and healthcare communities believe that a future without non-competes is inevitable. The conversation surrounding the harm caused by non-compete agreements — limiting employed physicians’ mobility and restricting patients’ access to care — has gained significant traction, notwithstanding contrary arguments asserted by healthcare employers regarding protecting their business interests and maintaining continuity of care. Even if the federal ban remains blocked, many states are expected to take up comparable legislation. Such legislation would follow laws in California, Minnesota, North Dakota and Oklahoma that ban the use and enforcement of non-competes, with only limited exceptions, such as in the sale of a business.
New Jersey, for example, may be positioned to pass its own restrictive laws on non-competes. The state’s Attorney General, Matthew Platkin, was one of 17 attorneys general who supported the FTC’s final rule, indicating strong state interest in limiting the reach of these agreements.
Conclusion
While the fate of the FTC’s ban is uncertain due to the August 20 court ruling, there is a growing belief in the healthcare industry that non-competes will ultimately be limited, if not eliminated. With multiple states poised to pass their own laws, the landscape for non-competes is likely to shift significantly in the coming years. Even in the face of legal setbacks, momentum for change continues to build, leaving the future of non-competes — especially in New Jersey — open to further developments. While such developments are sure to be welcomed by employed providers, healthcare organizations that employ providers, including independent practices, will need to adapt. For example, while post-employment non-competes are likely to be abolished, non-competes still may be enforceable in other contexts, such as in the sale of a practice or even as among co-owners of a practice.
Buttaci Leardi & Werner will continue monitoring the legal landscape and provide updates as more information emerges, ensuring that healthcare employers and employees remain informed about potential regulatory changes to non-compete agreements.
Tagged with: John W. Leardi
- Posted on: Sep 19 2024