How the FTC’s New Noncompete Regulation Affects Physician Employment Agreements

On April 23, the Federal Trade Commission (FTC) announced regulations that will prohibit noncompete agreements for many workers across America effective Sept. 4, 2024.

While the regulations are set to become effective 120 days after their publication, litigants have challenged the FTC’s authority to enact the regulations. Thus, the effective date may be further delayed, including indefinitely if the rule is overturned.

If the FTC’s rule takes effect, then it generally will prohibit all future noncompetes and existing noncompetes, subject to the exceptions discussed below. The rule applies broadly to workers who are employed, which includes many independent contractors, owners, or others not typically viewed as employees. The rule defines the term “noncompete” broadly, but does not cover typical confidentiality, nonsolicitation, and training repayment agreements.

Significant for Washington-based health care providers, the FTC’s rule likely does not apply to most nonprofits or state actors, a fact that will exempt broad segments of the health care industry. For example, in Washington all of the hospital systems (except two acute care hospitals and some psychiatric hospitals) are either nonprofits or pubic hospital districts/state actors. The same is true of many large multi-specialty practices; e.g., Providence/Franciscan, MultiCare, UW Medicine, etc.

Next, the FTC’s rule exempts noncompetes with senior executives that were in place as of the effective date of the rule. (This exemption does not apply to noncompetes entered into after the effective date of the rule.) A senior executive is defined as a worker earning more than $151,164 a year who is in a “policy-making position” for the entity.

Additionally, the FTC rule exempts noncompete clauses entered into pursuant to a bona fide sale of a business.

The FTC rule also does not affect causes of action (such as a violation of an existing noncompete) that accrue prior to the effective date.

Finally, if the FTC’s rules take effect, then employers will be required to notify, by the effective date of the rule, current and former workers with noncompetes that violate the rule that such noncompetes will not be, and cannot be, legally enforced.

The FTC’s rule, assuming it takes effect, will have broad national consequences on the use and enforcement of noncompete clauses. Every employer that uses a noncompete and every worker subject to a noncompete should pay close attention to the implementation of, and challenges to the rule, and should contact their legal counsel for further explanation of how the rule may apply to them.