Health Care Noncompetes Are Under Attack

July 19, 2021Articles

On July 9, 2021, President Joe Biden signed a wide-ranging executive order entitled “Promoting Competition in the American Economy.” One key element of the executive order is to address noncompete covenants that the White House characterized as stifling competition between companies.

Section 5(g) encouraged the FTC to draft rules which seek to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”[1] In a statement released along with the executive order, the White House stated more bluntly that the president is encouraging the FTC to “ban or limit noncompete agreements.”[2]

Action from the FTC is not out of the question. In 2011, the FTC sued a Nevada health care system that controlled 88% of the cardiologists in its market.  The ensuing settlement held that several of the doctors were exempt from the noncompete covenant and that the health care system could not require restrictive separation agreements.[3]

Noncompete covenants are very common in health care and are often viewed by hospital and physician practice employers as an important way of protecting their legitimate business interests. Employed physicians routinely have noncompete agreements, and on the nursing side, it is estimated that up to 80% of CRNAs are purportedly subject to noncompete clauses.[4] The American Medical Association sent a position paper to the FTC in 2020. [5] It cautioned that physicians should be wary of signing unreasonably strict covenants. The AMA also suggested that physicians in training should not sign noncompete agreements at all.

Earlier this year, the Ohio legislature introduced SB150, which would prohibit any employer of physicians from, as a condition of employment, entering into certain noncompete restrictions that would apply following the physician’s employment. The employer, however, could enter into a noncompete agreement during the term of the physician’s employment. The prohibition would not apply to an employer’s management employees. If a physician employee believes that an employer has violated the noncompete prohibition, the physician employee may sue the employer for damages, attorney’s fees, and costs.

Despite the threats to noncompetes in physician employment agreements, noncompete provisions remain enforceable in Ohio for the time being. With respect to President Biden’s recent executive order, the FTC would have to undergo the administrative rulemaking process to enact any limitations on noncompetes. Such a process would take months to complete, if not years. Additionally, the information released by the White House related to noncompetes does not indicate how proposed rules might apply to physicians. Instead, the information from the White House focused on the impact of noncompetes on the ability of workers to bargain for higher wages and better work conditions.

If you have any questions about creating, enforcing, or severing a health care noncompete, call Eric Plinke, Timothy Cahill, or LaTawnda Moore.