FTC Releases Draft Rule Regarding Non-Compete Agreements
On January 5 of this year, the Federal Trade Commission (FTC) released a draft rule regarding non-compete agreements.
The rule applies to all existing and future non-compete agreements between employers and employees. It also includes non-competes with independent contractors. It would nullify nearly every non-compete agreement for our physician owned practices and prohibit those going forward.
The definition of what constitutes a “non-compete agreement” is also intentionally broad. It includes traditionally labeled non-competes and other agreements that are so “unusually broad in scope that they function as such.” Thus, although other types of agreements between employers and workers are not explicitly included, if they are so restrictive that they limit a person from seeking or accepting other employment, they could be subject to this rule.
The rule was promulgated under the FTC’s Section 5, and under that authority the FTC does not have jurisdiction over non-profits. There is some ambiguity here, but as many hospitals are non-profit health systems, they may not be subject to this rule. It is clear, however, that the rule would apply to for profit physician practices. We have already received concern from many of our physician owned practices.
Finally, there is an exception in the rule for non-competes as the result of a sale of a business. For OSMA members, this would apply to members selling their practices in which their ownership interest in that practice is 25% or more. Again, the rule would not prohibit non-compete agreements for those physicians selling their practices at that ownership threshold.
Procedurally, there is a 60-day comment period with which OSMA and AMA will be involved. There will likely be a long back and forth between with the FTC once the comment period is over, and there certainly will be lengthy litigation following whatever language emerges from this process. This rule is far from final.
As this is the beginning of a long process for this rule, OSMA staff certainly need all the member input we can get. We will be updating and soliciting you for feedback regularly as this process evolves.