Noncompetes, FTC involvement and the federal courts: The follow-up

Following the rejection of the 2023 bill introduced to ban noncompete clauses by the governor of New York state, the Federal Trade Commission (FTC) attempted to establish a new ruling for noncompetes earlier this year. This new rule proposed a comprehensive ban on noncompete clauses in contracts that would have begun on Sept. 4, 2024, and would have included higher-level senior executives.

The new rule would have made previous contracts with noncompete clauses unenforceable for all employees besides senior executives, defined as workers earning more than $151,164 annually and who are in policy-making positions.

The FTC’s ruling was predictably challenged in the courts, and on Aug. 20, a federal judge blocked the ban from going into effect on Sept. 4.

However, as our previous coverage also demonstrates, the FTC’s actions show that the movement to ban noncompetes continues to gain traction in the U.S. Below, we share some background about the FTC’s proposed ban, the legal challenges, what health care groups think of noncompetes and what may happen next for noncompete clauses.

The stance

Ultimately, the FTC believes there are three major benefits to banning noncompetes, including reduced health care costs, an increase in new business formation and increased compensation for employees. Allowing for employee mobility, specifically in the health care industry, is expected to save up to $74-$94 billion (about $600 per person in the U.S.) over the next 10 years.

The FTC even argues that if companies are concerned about trade secrets or business models, companies may still enforce nondisclosure agreements (NDAs) and that fixed-term employments are not covered by the ban. The commission fundamentally believes that if an employer wishes to retain an employee, they should do so by improving wages and working conditions in comparison to their competition.

The legal battle

The litigation against the ruling was swift and quickly came to a head in August 2024. Specifically, three districts (northern and eastern Texas and eastern Pennsylvania) attempted a nationwide injunction to prevent the rule from initiating.  Even the U.S. Chamber of Commerce had filed a suit to bar the rule from initiating.  

The main argument that the opposition illustrated stems not from the legality of the noncompete, but rather the authority and jurisdiction of the FTC to invoke such a rule nationwide. Ultimately, Judge Ada Brown of the U.S. District Court for the Northern District of Texas, stated that the FTC overstepped their boundary when attempting to enforce the ban, and her ruling has officially thrown out the ban before it was able to begin.

The opinion in health care

Interestingly, the health care industry seems to be split on the situation. Groups representing physicians and groups representing hospitals are at odds with each other.

The AOA’s House of Delegates passed a policy statement in 2023 opposing the use of noncompete clauses that could hinder fair market competition. The American Academy of Family Physicians and the American College of Emergency Physicians both agree that noncompetes are harmful and desire employers to find more collaborative ways to retain their health care employees.

On the other hand, organizations such as the American Hospital Association and the Federation of American Hospitals, which primarily support for-profit hospitals, are adamantly opposed to the ruling. They state that it would decrease the number of health care professionals in an area, making it more difficult to recruit and retain health care professionals.

The hearing and the future

Following the preliminary hearing in northern Texas on July 3, federal judge Ada Brown temporarily blocked the FTC from enforcing the ban in Texas. This case then advanced and officially concluded by preventing the FTC from establishing and enforcing their ruling against noncompetes.

In Pennsylvania, federal judge Kelley Brisbon Hodge took a stance in defense of the FTC on July 23. ATS Tree Services filed a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania, arguing that noncompete clauses “provide its employees with necessary and valuable training and minimize the risk of them leaving.” However, Judge Hodge denied the plaintiff’s motion for a nationwide injunction. Ultimately, these cases have established a strong foundation for the argument against the FTC.

Following the official ruling on Aug. 20 by Judge Brown, the FTC stated that it will still address noncompetes on a case-by-case basis in the interim, and that they are also considering an appeal to Judge Brown’s ruling. This litigation against the ban was understood and expected and the fight will continue.

What DOs can do

If you are interested in getting involved with advocacy for either position, you should speak to your congressional representatives. Continued conversations about the noncompete ban can be brought to the public conscious and ultimately lead to greater changes, whether at the state level or federal level. Salaried physicians who are part of a union can also bring this to the attention of their employer through the union, if they wish to do so.

Ultimately, as employees in medicine, it is important to read, understand and agree to terms placed in your contract regardless of ongoing litigation. As an employer, it is important to retain high-performing medical professionals while keeping the intentions and goals of the business in mind. The medical industry continues to grow and adapt to the ever-changing economy, litigation and technical advancements.

This adaptation, in the end, is the beauty of the field.

Related reading:

What noncompete clauses mean to physicians and the health care industry at large

What med students need to know about the business of medicine

The 3 biggest traps to watch out for in physician employment contracts