FTC Unveils Rule Axing Non-Competes – But it’s Already on Shaky Ground

FTC Unveils Rule Axing Non-Competes – But it’s Already on Shaky Ground

Last week the Federal Trade Commission (FTC) issued a final rule that, if it takes effect, will ban most non-compete clauses among for-profit entities. There is a lot to unpack here. There are already legal challenges to the rule. While I know predicting the future is difficult and risky, I would say that at least in the context of healthcare, the probability that the legal challenge results in at least a temporary suspension of the rule seems very, very high. 

The rule is complex in part because the FTC has limited jurisdiction. In particular, it has oversight only over a corporation “organized to carry on business for its own profit or that of its members.” Courts, and even the FTC, have taken the position that nonprofits are generally outside the scope of the FTC. That would mean that for-profit entities, like most physician clinics, and some hospital systems, like Tenet, would be covered by the rule, and could not impose non-competes on employees, except in very limited situations, but nonprofit hospitals and clinics would be permitted to impose them unless some other law (like a state law) prohibits it.

That is a very weird result and one reason I think the courts will intervene.

The FTC recognizes the inconsistency, but when presenting the rule, asserted that some entities that claim nonprofit status may in fact effectively be for-profit. It cites cases where courts have ruled that if a nonprofit has “ceded effect control” to a for-profit partner, the entity can lose its tax-exempt status. That is certainly true, but also rare. It would be revolutionary for the government to assert that most (or even many) non-profits don’t actually qualify for that status.

According to the FTC, 58 percent of hospitals claim tax-exempt status, with another 19 percent being state or local organizations that are also outside the FTC’s reach. In other words, the FTC admits that absent extenuating circumstances, 77 percent of hospitals fall outside the scope of the new rule.

There are certainly some people who would like to eliminate tax-exempt status for hospitals, but that is a separate policy question, which is also well outside the scope of this rule. Courts are likely to be troubled by a rule that only applies limitations to about a quarter of an industry. 

For individuals employed by a non-profit or government-run facility, the rule has no impact. For those employed by a for-profit organization, whether a hospital or clinic, if the rule takes effect in 120 days (as it will, absent court intervention), in many cases their non-compete provisions would be invalidated.

The regulation will prohibit enforcement of any current non-competes for any non-executive employees, with the exception of those associated with the sale of a business. But it allows employers to continue to enforce non-competes already in place with “senior executives.” “Senior executives” are workers who are in a policymaking position and earn more than $151,164 a year.

It is likely, particularly in physician-owned clinics, that there are a number of employees who will have enough policy influence to be considered senior executives. That said, the odds that the rule will take effect anytime soon seem very, very low. Courts are likely to be concerned about the inconsistent treatment of for-profit and nonprofit hospitals.

A court injunction seems probable. 

It is worth noting that even if a court prevents the rule from taking effect, this is part of a growing trend against non-competes. The FTC notes that there are provisions in Colorado, Florida, Indiana, Iowa, Kentucky, New Mexico, South Dakota, Texas, and the District of Columbia that limit non-competes for at least some healthcare professionals, and that list does not include broader non-compete limitations that exist in places like California, Minnesota, Oklahoma, and North Dakota.

Personally, I discourage my clients from imposing non-competes, because I think they often cause litigation, as department employees need to drum up a reason to void the non-compete.

Whatever happens to the rule, the number of non-competes is likely to continue to fall. Like the FTC, I would like to see a full ban on non-competes. But I think we will be singing that Rolling Stones classic for a while, noting that “you can’t always get what you want.”

We will see if my thoughts cause me “to get my fair share of abuse.”

Print Friendly, PDF & Email
Facebook
Twitter
LinkedIn

David M. Glaser, Esq.

David M. Glaser is a shareholder in Fredrikson & Byron's Health Law Group. David assists clinics, hospitals, and other health care entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David's goal is to explain the government's enforcement position, and to analyze whether this position is supported by the law or represents government overreaching. David is a member of the RACmonitor editorial board and is a popular guest on Monitor Mondays.

Related Stories

Leave a Reply

Please log in to your account to comment on this article.

Featured Webcasts

Navigating AI in Healthcare Revenue Cycle: Maximizing Efficiency, Minimizing Risks

Navigating AI in Healthcare Revenue Cycle: Maximizing Efficiency, Minimizing Risks

Michelle Wieczorek explores challenges, strategies, and best practices to AI implementation and ongoing monitoring in the middle revenue cycle through real-world use cases. She addresses critical issues such as the validation of AI algorithms, the importance of human validation in machine learning, and the delineation of responsibilities between buyers and vendors.

May 21, 2024
Leveraging the CERT: A New Coding and Billing Risk Assessment Plan

Leveraging the CERT: A New Coding and Billing Risk Assessment Plan

Frank Cohen shows you how to leverage the Comprehensive Error Rate Testing Program (CERT) to create your own internal coding and billing risk assessment plan, including granular identification of risk areas and prioritizing audit tasks and functions resulting in decreased claim submission errors, reduced risk of audit-related damages, and a smoother, more efficient reimbursement process from Medicare.

April 9, 2024
2024 Observation Services Billing: How to Get It Right

2024 Observation Services Billing: How to Get It Right

Dr. Ronald Hirsch presents an essential “A to Z” review of Observation, including proper use for Medicare, Medicare Advantage, and commercial payers. He addresses the correct use of Observation in medical patients and surgical patients, and how to deal with the billing of unnecessary Observation services, professional fee billing, and more.

March 21, 2024
Top-10 Compliance Risk Areas for Hospitals & Physicians in 2024: Get Ahead of Federal Audit Targets

Top-10 Compliance Risk Areas for Hospitals & Physicians in 2024: Get Ahead of Federal Audit Targets

Explore the top-10 federal audit targets for 2024 in our webcast, “Top-10 Compliance Risk Areas for Hospitals & Physicians in 2024: Get Ahead of Federal Audit Targets,” featuring Certified Compliance Officer Michael G. Calahan, PA, MBA. Gain insights and best practices to proactively address risks, enhance compliance, and ensure financial well-being for your healthcare facility or practice. Join us for a comprehensive guide to successfully navigating the federal audit landscape.

February 22, 2024
2025 IPPS Masterclass Day 3: MS-DRG Shifts and NTAPs

2025 IPPS Masterclass Day 3: MS-DRG Shifts and NTAPs

This third session in the ICD10monitor 2025 IPPS Masterclass will feature a review of FY25 changes to the MS-DRG methodology and new technology add-on payments (NTAPs), presented by senior healthcare consultant Laurie Johnson, with bonus insights and analysis from CDI expert Dr. Erica Remer.

August 15, 2024
2025 IPPS Masterclass Day 2: Master ICD-10-PCS Changes

2025 IPPS Masterclass Day 2: Master ICD-10-PCS Changes

This second session in the ICD10monitor 2025 IPPS Masterclass will feature a review of the FY25 changes to ICD-10-PCS codes, presented by senior healthcare consultant Laurie Johnson, with bonus insights and analysis from CDI expert Dr. Erica Remer.

August 14, 2024
2025 IPPS Masterclass Day 1: Master ICD-10-CM Changes

2025 IPPS Masterclass Day 1: Master ICD-10-CM Changes

This first session in the ICD10monitor 2025 IPPS Masterclass will feature a review of FY25 changes to ICD-10-CM codes and guidelines, SDoH, CCs/MCCs and revisions to the MCE, presented by senior healthcare consultant Laurie Johnson, with bonus insights and analysis from Dr. Erica Remer.

August 13, 2024
2025 IPPS Masterclass: Final Rule Update with Expert Insights and Analysis

2025 IPPS Masterclass: Final Rule Update with Expert Insights and Analysis

Only ICD10monitor delivers what you need: updates on must-know changes associated with the FY25 Inpatient Prospective Payment System (IPPS) Final Rule, including new ICD-10-CM/PCS codes, plus insights, analysis and answers to questions from the country’s most respected subject matter experts.

August 13, 2024

Trending News

Happy National Doctor’s Day! Learn how to get a complimentary webcast on ‘Decoding Social Admissions’ as a token of our heartfelt appreciation! Click here to learn more →

Happy World Health Day! Our exclusive webcast, ‘2024 SDoH Update: Navigating Coding and Screening Assessment,’  is just $99 for a limited time! Use code WorldHealth24 at checkout.

SPRING INTO SAVINGS! Get 21% OFF during our exclusive two-day sale starting 3/21/2024. Use SPRING24 at checkout to claim this offer. Click here to learn more →