Dive Brief:
- The Federal Trade Commission is urging major healthcare employers and staffing companies to review their employment agreements to root out any restrictive noncompete clauses.
- On Wednesday, FTC Chair Andrew Ferguson sent letters to an unspecified number of healthcare companies warning them that regulators will enforce the law against unfair or anticompetitive noncompetes. The letter stresses that recipients are not under any suspicion of illegal conduct.
- It’s part of a larger philosophical shift at the FTC when it comes to noncompetes, as the agency pivots away from the total ban espoused by the Biden administration toward a targeted enforcement strategy. The FTC’s new position is likely a relief for hospitals and other employers, which had lobbied heavily against the ban.
Dive Insight:
The healthcare industry commonly relies on noncompete agreements, especially as a growing number of doctors are employed by hospitals and other corporations. The American Medical Association estimates that noncompete clauses affect between 37% and 45% of physicians.
But the frequency of the arrangements doesn’t mean they’re popular: Physicians have testified to antitrust regulators that noncompetes keep them locked in place, unable to look for other employment even if they’re unhappy with their current situation.
Noncompetes may also raise medical prices, while suppressing wages for workers and inhibiting the creation of new businesses, according to past FTC research.
The FTC has authority to go after overly broad or potentially anticompetitive noncompetes. But under President Donald Trump the agency has stepped back from the aggressive stance of the Biden administration, which sought to eliminate noncompetes for non-executive workers altogether.
Last week, FTC commissioners voted to stop defending the nationwide ban, which courts in Texas and Florida had already blocked. (Another court in Pennsylvania had allowed it to proceed).
As a result of the litigation, the ban never went into effect. With the FTC’s decision to step back from its appeals, it likely never will — at least not during this administration. Instead, the FTC plans to go after particularly onerous noncompetes.
Last week, the agency asked the public for information that could inform future enforcement action. The FTC specifically asked commenters to call out employers with problematic noncompetes that may be illegal, particularly for “market participants in the healthcare sector.”
And now, Ferguson is following through on his promise earlier this month to send letters to companies in industries “plagued by thickets of noncompete agreements,” like healthcare.
Ferguson’s letter asks recipients to “conduct a comprehensive review [of] employment agreements — including any noncompetes or other restrictive covenants — to ensure that they comply with applicable laws and are appropriately tailored to the circumstances.”
“If your company is currently using noncompetes that are unfair or anticompetitive under the FTC Act, I strongly encourage you to discontinue them immediately and to notify relevant employees of the discontinuance,” Ferguson wrote.
There’s some grey area about what makes a noncompete illegal, which may make compliance tricky. However, recent FTC action against a pet cremation company gives some clues as to regulators’ bar for enforcement. Earlier this month, the FTC filed a complaint against Gateway Services after finding it imposed contracts on almost all of its employees prohibiting them from working in the pet cremation industry for one year after leaving the company.
“Enforcement against unreasonable noncompete agreements remains a top priority for the Federal Trade Commission,” Kelse Moen, the deputy director of the FTC’s Bureau of Competition, said in a statement Wednesday. “We strongly encourage all employers — not just those receiving letters today — to review their contracts closely.”
The FTC did not respond to questions about what companies had received the letters or why they were selected.
