The Federal Trade Commission’s proposed ban on noncompete clauses in employment contracts is going to dramatically alter the healthcare sector. The proposal would bar employers from entering or enforcing such clauses with employees or independent contractors and require companies to nullify any existing ones within six months. The ban would exempt companies that want to require an owner or partner selling a business from immediately re-entering the field.
“Unless you’re willing to move hundreds of miles away or take a huge pay cut to restart your career from scratch, a noncompete can effectively lock you into a job. That’s a clear restriction of individual liberty,” FTC Chair Lina Khan said in an op-ed for the New York Times.
Hospitals and other health systems rely on restrictive covenants to retain physicians. Restrictive covenants have been in contracts of physicians in place for years. It has prevented clinicians from leaving their current workplace and going to a competitor nearby and taking all their patients with them.
The FTC said eliminating noncompete may also increase physician earnings and estimated the step would lower healthcare costs by as much as $148 billion annually. Regulators argue that noncompete stifle new entrants from taking on incumbents, and consumers face higher prices in markets that are highly concentrated like healthcare.
The proposal has also raised questions over whether the FTC has the authority to draft such a rule. One FTC commissioner spoke out against the noncompete proposal in a 14-page letter, arguing that the agency is unlikely to prevail against lawsuits challenging its legal authority.
“The FTC may not have the authority under the FTC Act to impose this rule on nonprofit organizations,” said Roger Strode, a healthcare attorney and partner at the law firm Foley & Lardner.