What to Know: The FTC’s Rule on Non-Compete Clauses

April 24, 2024

The Federal Trade Commission’s (FTC) final rule to ban non-compete clauses has spurred uncertainty in health care and other sectors across the U.S.

On Tuesday, the commission voted to approve the final rule 3–2 with Commissioners Melissa Holyoak and Andrew N. Ferguson voting no. Written statements are expected from the commissioners shortly. The American Hospital Association (AHA) was among the organizations expressing concern following the announcement Tuesday.

“Three unelected officials should not be permitted to regulate the entire United States economy and stretch their authority far beyond what Congress granted it—including by claiming the power to regulate certain tax-exempt, non-profit organizations,” said Chad Golder, AHA general counsel and secretary, in a statement. “The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals’ ability to care for their patients and communities.”

Here's what you need to know:

• The rule:  The FTC’s final rule would make existing noncompete agreements for the large majority of workers unenforceable, with a few exceptions.
  • Existing noncompete agreements for senior executives ($151,164) can remain under the rule, but employers would be prohibited from entering into or enforcing new noncompete agreements with these executives.
  • Employers also would be required to provide notice to non-senior executives who are bound by an existing noncompete that they will not be enforced.
• Effective date:  The final rule would become effective 120 days after publication in the Federal Register, but faces legal scrutiny ahead of implementation.
• Notable:  The U.S. Chamber of Commerce filed a lawsuit today against the FTC for the rule, saying the regulatory agency was overstepping its constitutional and statutory authority to write its own competition rules.
• Quoteworthy:  “This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” U.S. Chamber of Commerce President and CEO Suzanne P. Clark said in a statement.

Last Week, the Pennsylvania House passed House Bill 1633. The legislation would ban new and void upon license renewal existing restrictive covenants between health care practitioners and health care facilities.

“The non-compete issue reaches beyond health care and beyond Pennsylvania,” HAP President and CEO Nicole Stallings said in a statement. “We need to consider the timing of potential state action while the federal landscape is in flux. This includes implications of federal preemption and likely legal challenges on constitutionality.”

She added: “The hospital community remains ready to work with the legislature to increase the number of well-trained professionals to provide high-quality care to every Pennsylvanian in every community across the commonwealth.”

HAP wrote to lawmakers to oppose the bill and encourages members to join this important advocacy as the legislation moves to the Senate.