Doctors & nurses lock arms with other workers over contract non-compete clauses
In the wake of widespread unionization in occupations ranging from baristas to auto assembly-line laborers, the latest worker-rights movement is coming to healthcare. Now healthcare employees can thank a new Federal Trade Commission (FTC) rule prohibiting most contract non-compete clauses.
The FTC rule, passed by a squeaker 3-2 vote of commission members April 23 and applies to industries across the board. It covers many but not all healthcare entities from using non-compete clauses.
The rule generally exempts non-profit and tax-exempt hospitals. The restraint does not categorically exempt non-profits and tax-exempt hospitals specifically, say employment-law attorneys at Washington powerhouse law firm Squire Patton Boggs.
But because the rule applies to entities “organized to carry on business for [their] own profit or that of [their] members,” the non-profits should have little problem avoiding the ban. Further, the rule exempts “senior executives” earning more than $151,164 annually and participating in policy making in their roles.
The measure will become effective 120 days after publication in the Federal Register.
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Healthcare played a significant role in a close FTC vote
Rationales for the non-compete clause ban, according to the FTC, include not only an annual increase in more than 8,500 new businesses nationally but also higher earnings for healthcare workers averaging increases of $524 per year, and a savings in healthcare costs of up to $194 billion over the next decade.
“The Commission…finds that instead of using noncompetes to lock in workers, employers that wish to retain employees can compete on the merits for the worker’s labor services by improving wages and working conditions,” the FTC said in its press release.
The FTC estimates that nearly one in five Americans is bound by noncompete agreements. The new rule carries all the more weight as the majority of physicians have left private practice for employed status, approaching three-quarters of the total nationwide.
One study found that as many as 45% of primary care physicians were covered by a noncompete as of 2018. Such employment constraints have broadly served as “a clear restriction of individual liberty,” said FTC Chair Lina Khan in a New York Times op-ed.
The FTC rule on the non-compete clause may not withstand challenges
The U.S. Chamber of Commerce promptly filed a lawsuit challenging the ban under the argument that the FTC overstepped its authority to regulate unfair methods of competition – a position shared by the American Hospital Association.
Similarly, the American Medical Group Association took issue with the prohibition on the basis that noncompetes boost a “team-based approach” to care.
If the challenge goes as far as the U.S. Supreme Court, skeptics believe it may succeed, given the Court’s increasing curb on regulatory authority and its overturning of the Chevron Doctrine, in place for 40 years.
On the other hand, some professional medical societies are rallying around the worker-rights banner. For example, the American College of Surgeons took the position in a letter to the FTC that because some patients require multiple surgeries for a single condition, exiling a surgeon from a particular region could disrupt continuity of care.
Meanwhile, Maryland has joined California, Oklahoma, and Oregon in passing a ban on healthcare non-competes April 15 on its own. The Maryland law exempts providers earning more than $350,000 annually, though with some restrictions.
Update: Judge throws out FTC’s non-compete clause ban
On August 20, 2024, federal Judge Ada Brown of the U.S. District Court for the Northern District of Texas blocked the FTC ban, writing that the FTC exceeded its constitutional authority.
“The role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do,” wrote Judge Brown, who is a Donald Trump appointee and presides in a district well known for its business friendliness.
The ban was set to take effect September 4. The ruling conflicts with a July ruling by a Pennsylvania federal judge, who declined to halt the ban, approved by an FTC Democratic majority. Judge Brown in Texas had earlier in the same month issued a preliminary order against the ban.
In yet another district, a federal judge in Florida just last week held that the ban was probably invalid and stopped it from being applied to a real estate developer.
The divergent opinions increase the odds the U.S. Supreme Court will eventually hear arguments in the issue.
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