Advocates Split on the Benefit of Banning Non-Compete Clauses!
The Federal Trade Commission (“FTC”) unilaterally issued a Proposed Rule to ban non-compete clauses in employment contracts. See blog. The first question is: Does the FTC have the legal authority to ban non-compete clauses? As a member of the American Society of Medical Association Counsel (“ASMAC”), the president, Greg Pepe, sent out an informal questionnaire to solicit comments by health care attorneys and heads of medical societies.
Greg said, “The respondents were split 50%/50% between medical society attorney members and private practice attorneys who are members. In general, the most common threads were as follows:
- The most common comment was that non-compete provisions in physician employment contracts impede the physician/patient relationship. This comment came up over and over in a number of ways.
- A few comments pointed out that rural areas were disproportionately harmed by non-competes, with physicians having to move away to comply.
- Hospital-based physician groups need non-competes to protect their arrangements.
- Exemptions for non-profits is a loophole that eviscerates the effort.
- ASMAC should be mindful of the divergent interests of its members and their client when considering this kind of commentary.
Very few people offered specific examples of the ways non-competes in physician contracts harmed physicians. If your organization takes steps to comment please keep ASMAC advised.”
I decided that ASMAC’s findings, even if informal, were important enough to post here on my blog. So, thank you, Greg, for heading this up.
I would like to pay particular attention to #4. Because, a week or so ago, I presented on RACMoniter the story about the FTC banning non-compete clauses, but failed to acknowledge the exemptions for non-profits, which is a HUGE exception. There are 6093 hospitals in the U.S. 1228 of the 6093 hospitals are for profit. The vast majority of hospitals are either government run or non-profit. If you notice above, the “anti-banning comment of non-competes” came from hospital-based physician groups (#3). That makes sense.
Most people, when asked, touts that non-compete agreements impede physician-patient relationships. Personally, as an attorney, non-compete agreements represent requiring me not being able to work at another law firm if I decided Practus, LLP, did not work out. Similarly, if I had attended med school and was working at a hospital in Angier, NC, which was in close proximity to my home, and received a better offer at a nearby hospital, why should I be impeded from working? Obviously, families need to have an income, and what if the physician was the sole breadwinner? The non-compete agreement could really adversely affect a family.
Non-compete agreements, also called restrictive covenants, are an increasingly common requirement for employment in many sectors, including health care. Sometimes non-compete agreements appear as a clause within a contract. Other times, they are separate contracts in and of themselves. Though common, the terms of non-compete agreements vary greatly.
Most people, even physicians, when presented with a contract, “fake” review the contract, and sign without digesting – or even reading – the material. Many don’t even know that a non-compete clause exists in their contracts. Until it’s too late.
Will the FTC’s Proposed Rule become permanent? So far, there have been 4.91k comments. One anonymous person posted: “I am completely in favor of forbidding noncompete agreements.” A woman posted: “I am a veterinarian and have worked close to 40 years. I have been an associate and a practice owner. I see no justification for non-competes and in fact feel it harms the entire profession. Non-competes are pervasive and notoriously difficult to fight. For many years now I have worked for corporations and have watched colleagues both attempt to negotiate non-competes and bear the brunt of legal battles if they attempt to challenge the non-compete. Should you really have to move your entire family to acquire a job? How do I harm a company by working for their competitor?”
A guy wrote: “These should’ve been banned a long time ago. Job mobility is important if we “really” believe in our economic system. Ban NDAs.”
A physician wrote: “As a physician I have suffered significant financial and personal hardship relating to a non-compete agreement. As a result of a non-compete I had to move across the country (twice). I suffered significant loss of income as a result of this not withstanding the expense of relocating twice within a year. My self and my family also suffered significant psycho-social ramifications and de-stabilization. I now also face another non-compete agreement that will essentially render me unable to leave my next position without tremendous harm to my life-long earning potential, credibly rendering me an indentured servant. The presence of a non-compete also removes any leverage an employee such as myself might have to negotiate agains unacceptable working or wage conditions.”
Unlike the commenters from ASMAC, which was split 50-50, it appears that many comments support banning non-compete agreements, but, remember, the not-for-profit exception!! The comment period is open through Mar 10, 2023.