The Federal Trade Commission seeks to ban non-compete clauses, contractual provisions used by many health care employers that are accused of inhibiting wages, limiting innovation and discouraging businesses. new, through a proposed rule published Thursday.
According to the agency, the regulation would increase wages by up to $296 billion a year by banning the use of non-compete provisions and repealing existing provisions across all industries. Researchers estimate that at least 40% of doctors are subject to restrictive covenants that often prevent them from working for competitors within a 30-mile radius for a year or two. These contracts are even more widely used and strictly enforced in the insurance and pharmaceutical benefits management industries, experts say.
Barak Richman, a professor of law and business at Duke University, said non-competitive contract terms, especially when they involve low- and middle-income workers, are rarely beneficial. for both sides.
“The noncompetitive stuff is being overused,” says Richman. “It is said that many people attribute much of California’s growth in the 1990s to a general refusal to enforce noncompetitive regulations. The theory is that it makes the labor market much more creative and efficient.”
With no federal policy, non-compete agreements have been governed by a series of state laws. Physicians’ non-compete provisions are generally unenforceable in California, North Dakota, and Oklahoma. According to a 2020 report by the University of California, Hastings, and the University of California, Berkeley, 21 states have banned most restrictive covenants or set time limits, payout requirements or other conditions.
In the insurance industry, most executives are subject to non-compete clauses, said Tom Giella, president of management consulting and executive search firm Korn’s healthcare practice. Ferry, said. If a former employee breaches a contract by taking a job with a competitor, the previous employer can sue or withhold deferred compensation or equity, he said.
“The noncompetitors are hard to break in the insurance industry and they’ll come after you,” says Giella. “Banning non-competitors would make the healthcare labor market more flexible and competitive, and wages would likely increase.”
Technology company Change Healthcare, which was acquired by UnitedHealth Group in October despite objections from the FTC, has sued a former employee for allegedly violating the non-competition clauses of his contract when he joined a competitor. Olive AI. The CEO has gone out in protest, alleging that UnitedHealth Group failed to pay the full term of his agreement, as required by Massachusetts law. Both cases were dismissed in November.
The proposed ban on non-compete agreements is one element of the FTC’s broader strategy to curb anticompetitive activity in healthcare and other industries. FTC President Lina Khan is reworking the agency’s merger guidelines to prevent monopolies and increase competition. The Commission has successfully challenged several proposed health system mergers over the past year.
According to a 2022 survey of 117 orthopedic surgeons in Louisiana, potentially anti-competitive contract terms such as non-compete provisions can reduce quality. Nearly two-thirds said non-compete arrangements force patients to travel long distances to maintain continuity of care. More than three-quarters of doctors said the terms force them to give up patients.
But advocates of non-compete provisions say they can encourage employers to invest in technology or potentially pay individuals more. David Woolf, a partner at the law firm Faegre Drinker Biddle & Reath, who represents healthcare firms in an employment lawsuit, said: “For example, employers can pay high wages. workers if their work is protected from competitors for a certain period of time.
“Non-competition provisions can encourage employers to innovate and invest when they know what they’re doing is protected and employees won’t walk out the door and go to a competitor,” says Woolf. painting. “That’s my concern.”
Woolf said a stricter regulatory approach to non-compete agreements would be more appropriate than an outright ban. Advocates of non-compete provisions, he said, will likely question the agency’s legal authority to enforce the ban.
The proposed rule would apply to independent contractors and anyone working for an employer, paid or not. It generally does not apply to other employment restrictions, such as non-disclosure agreements, unless they are so broad they act as de facto non-compete provisions.
“There is a bit of ambiguity about what would constitute a non-disclosure agreement that is broad enough for it to be considered non-disclosure,” said Beth Vessel, antitrust attorney at law firm Beth Vessel at Waller Lansden Dortch & Davis. compete. If the ban is passed, she said, it could affect the value of healthcare mergers and acquisitions. Vessel said acquirers will likely pay less if there is no guarantee that employees will stay for a certain period of time after the deal closes.
Vessel said supplier associations would likely sue the FTC if they implemented the policy. “I don’t know if it will survive in the end because it’s so broad,” she said. “Looks like it’s going to be a pretty uphill battle in court.”
