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The Federal Trade Commission voted Tuesday to ban noncompete agreements, avoiding restrictive agreements that lock doctors — and the patients they treat — with their current employers.
With the 3-2 vote, FTC commissioners finalized a rule proposed in January 2023 to prevent employers from enforcing non-compete clauses, after finding that this practice is exploitative, suppresses wages and blocks the creation of new businesses.
The ban has considerable consequences for a number of sectors, notably healthcare, a sector which frequently relies on non-competition, especially as an increasing number of doctors are employed by hospitals and other companies.
Removing noncompetes evens the balance of power between these doctors and their employers, and makes it easier for medical workers to move between jobs, experts say. This could also lead to an increase in wages.
However, the ban is almost certain to face a legal challenge that some antitrust lawyers say the FTC is unlikely to win. The U.S. Chamber of Commerce — the nation's largest business lobby — announced plans to file suit as early as Wednesday over the rule.
The final rule
The FTC had to finalize the ban since the agency led by Lina Khan did so. took a more aggressive stance in the fight against anti-competitive behavior than under previous administrations. Now, regulators are poised to change the employment landscape for about one in five American workers subject to noncompetes.
“The freedom to quit one's job and take another is fundamental to a free and fair economy,” Commissioner Rebecca Slaughter, a Democrat who voted in favor of the rule, said at the FTC meeting Tuesday. .
The final rule prohibits new non-competes for all workers. Existing non-competes can remain in effect for senior executives – employees earning more than $151,164 per year in management positions – but are unenforceable for all other workers after the rule takes effect, 120 days after its publication in the Federal Register.
In developing the final rule, the agency found extensive research that noncompetes make it more difficult for workers to move between jobs and can raise prices for goods and services, while suppressing workers' wages and inhibiting the creation of new businesses, Ben Cady said. , an attorney in the FTC's Office of Policy Planning, during the meeting.
Of the 26,000 comments regulators received on the proposal, 25,000 were in favor of the ban, Cady said.
A number of these comments came from doctors saying non-compete agreements would force them to leave their community to find work if they wanted to leave their employer, a problem exacerbated by widespread consolidation of hospitals.
Khan and Slaughter, along with Commissioner Alvaro Bedoya (also a Democrat), specifically cited health care workers as a key example of why noncompetes should be overturned when voting for the rule.
“These are doctors who have had to move with their families or leave the state just to be able to practice medicine. A pandemic has killed half a million people in this country, and there are doctors who can’t work because of a non-compete,” Bedoya said.
The FTC also found evidence that noncompetes raise consumer medical care prices. According to Cady, the FTC's Bureau of Economics estimates that the final rule would reduce health care costs by $194 billion over the next decade.
In voting against the rule, Commissioners Melissa Holyoak and Andrew Ferguson, both Republicans, said the FTC lacked authority from Congress to enact the regulations. Holyoak stressed that his dissent did not constitute an endorsement of noncompetes, while Ferguson said he was “sympathetic to the policy” but “I don't believe we have the power to cancel tens of thousands of existing contracts.
However, “tThe FTC has the power, but historically it has not sought to use it,” said David Balto, antitrust lawyer and former policy director of the FTC.
Hospital opposition
Hospitals, which are the largest employer of U.S. doctors, likely aren't happy with the FTC's vote either. The powerful hospital lobby, the American Hospital Association, argued that the agency lacked the authority to prohibit noncompetes and also pushed the FTC to exempt doctors and executives from any final regulations.
“Now is not the time to disrupt healthcare labor markets with a rule like this” the AHA wrote in the comments on the rule proposed last year, highlighting the turbulent state of health care employment during the coronavirus pandemic. Hospitals saw their labor costs skyrocket during the COVID-19 crisis as they struggled to retain staff, although the trend has moderated in recent months.
Some groups representing medical practices, including the American Medical Group Association, also opposed the ban, arguing that non-competition improves continuity of care for patients. However, the American Medical Association voted to oppose non-competes for doctors working in hospitals or recruitment firms at a meeting in June.
Interestingly, some hospital employers could be exempt from this rule, if they survive legal challenges.
Rule may not apply to nonprofit health systemswhich represent about half of all U.S. hospitals, because the conduct of nonprofit, tax-exempt organizations is outside the FTC's jurisdiction.
During Tuesday's meeting, Slaughter noted that the rule “will struggle to reach” health care workers employed by nonprofit organizations, despite the “powerful stories” those workers have submitted about the proposed rule .
Still, “if you claim nonprofit tax status but are truly organized for the benefit of your members, you fall within our jurisdiction and are covered by the rule,” Slaughter said.
The cancellation of non-competes comes as medical staff, including doctors and nurses, say they are deeply dissatisfied with their job — particularly because of low wages. Nearly half of healthcare professionals say they want to quit smoking in the next 12 months, according to a survey by payroll technology provider Everee.