Fight over health noncompete pacts far from over
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FTC chairwoman Lina Khan. Photo: Kevin Dietsch/Getty Images
Hospitals and other health providers will shift their attention to how states opt to police non-compete agreements now that a federal court has blocked a Federal Trade Commission ban on the widely used contracts.
Why it matters: The FTC's contentious effort had far-reaching implications for health care — and raised the profile of an issue that was already getting attention in statehouses, experts say.
The big picture: The wide-ranging ban blocking employers from restricting workers' ability to work for rivals would have taken effect Sept. 4.
- Large employers, including health systems, were largely expecting an injunction before then, but were making some preparations as the deadline closed in.
- But the ruling, alongside previous preliminary injunctions in Pennsylvania and Florida, are likely to be appealed.
- Beyond the legal machinations, the FTC "managed to bring this issue to the fore" by showing how the arrangements affected about 1 in 5 U.S. workers, or around 30 million people, Faegre Drinker labor and employment partner Matt Fontana told Axios.
Driving the news: California, Minnesota, North Dakota and Oklahoma have blanket noncompete bans.
- Starting in 2025, Pennsylvania and Louisiana will see limits to noncompetes specifically for certain health care workers.
- They're following the lead of Iowa, Kentucky and Massachusetts, which saw health care-specific noncompete bans take effect within the last two years.
- Even though New York Gov. Kathy Hochul vetoed late last year a measure that would've outlawed noncompetes in her state, it's expected a narrower version of that law could come back up, Fontana said. New York City began considering its own legislation earlier this year.
Between the lines: Law firms have been advising health systems and other health care clients with the uncertainty to review and "future proof" their agreements as more states "look to take up the banner," Kevin Goldstein, lead antitrust lawyer for Winston & Strawn, told Axios.
- That's particularly important with "increasing judicial skepticism" of the traditional noncompete, Peter Steinmeyer of Epstein Becker Green told Axios.
- They may want to consider alternative arrangements such as non-solicitation agreements, confidentiality agreements or an arrangement known as garden leave, or a period during which an employee is paid while being required to stay away from work.
- They may also want to more narrowly tailor noncompetes to a shorter duration of time or smaller geographic areas.
What they're saying: This week's ruling was praised by the industry, with the American Hospital Association saying the judge was right to set aside the FTC's "breathtaking assertion of regulatory power."
- "Commissioners did not attempt to understand the disruptive impact it would have on hospitals, health systems, and the patients they serve," the AHA said in a statement.
The other side: The FTC is weighing an appeal. "Today's decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions," a spokesperson said.
