In the Complex Rehab Technology (CRT) world, organizations often use noncompete agreements to prevent key employees from leaving – or sharing internal secrets when they go.
A recently finalized federal regulation seeks to put a stop to those practices, however.
On April 23, the Federal Trade Commission (FTC) voted 3-2 to finalize a new rule restricting employers from implementing and enforcing noncompete agreements against their workers. Some cities and states have such bans in place already, but the FTC’s decision could terminate them across the U.S.
FTC: Noncompetes suppress new ideas
“Noncompete clauses keep wages low, suppress new ideas and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said in a statement. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Health care played an important role in the FTC’s decision to take aim at noncompetes.
Hospitals, health systems and providers of almost every type frequently use noncompetes to prevent their employees from job-hopping in extremely competitive labor markets. The CRT field is no exception, with Assistive Technology Professionals (ATPs) in high demand and commonly at the receiving end of a noncompete clause, for example.
Chip Kahn, president and CEO of the Federation of American Hospitals, captured the ban’s impact on health care in a statement released shortly after the FTC voted. His remarks focus on hospitals, but the sentiments could apply to CRT and other parts of health care as well.
“This final rule is a double whammy,” Kahn said. “The ban makes it more difficult to recruit and retain caregivers, while at the same time creating an anti-competitive, unlevel playing field between tax-paying and tax-exempt hospitals – a result the FTC rule precisely intended to prevent.”
From when the FTC proposed its noncompete ban through the end of that proposal’s comment window, it received more than 26,000 comments. The bulk of those comments were from individuals supporting the ban, according to the FTC, which also said a substantial amount came from the health-care industry.
FTC’s noncompete ban takes effect 120 days from the rule’s publication in the Federal Register.
Exceptions to the noncompete rule
At that point, according to the FTC, employers will need to stop enforcing existing noncompete agreements with certain workers, while also letting employees know they’re no longer obligated to uphold previous commitments.
CRT employers should be aware of a few exceptions, though.
One such exception: The FTC rule clarifies that senior executives making more than $151,164 and who are in a “policymaking position” aren’t covered by the ban.
What’s more, the FTC’s noncompete ban will include exemptions between the buyer and seller of a business.
“Most of the commenters who supported some form of exception for non-competes between the seller and the buyer of a business contended that they are necessary to protect the value of the sale by ensuring the effective transfer of the business’s goodwill,” the final rule states. “According to these commenters, a buyer will be less willing to pay for a business if they cannot obtain assurance that they will be protected from future competition by the seller, and so a failure to exempt related non-competes may chill acquisitions.”
Additionally, those in the CRT space should be aware that the noncompete ban could potentially impact nonprofit organizations as well.
There’s a misconception that the FTC has no authority over nonprofits, but that’s not entirely true, the agency argues. If a nonprofit organization engages in business on behalf of for-profit members, for instance, it could still be held to the standards in the non-compete ban.
“Merely claiming tax-exempt status in tax filings is not dispositive,” the final rule clarifies.
The final rule does not impact trade secret laws and non-disclosure agreements (NDAs), according to the FTC.
Looking ahead, the FTC ban is guaranteed to be challenged in court, with several groups already promising to file their own cases against it.
The U.S. Chamber of Commerce is already mobilizing its own legal effort.
“The Federal Trade Commission’s decision to ban employer non-compete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” Suzanne P. Clark, the Chamber of Commerce’s president and CEO, said in a statement.
A fact sheet on the noncompete ban is here. The full 570-page final rule is available here.
