In the home medical equipment (HME) industry, some employers may seek to discourage their brightest stars and highest performers from leaving the organization via noncompete agreements.
That might not be possible for much longer.
The Federal Trade Commission (FTC) on April 23 voted 3-2 to finalize a new rule blocking employers from using noncompete agreements to control workers’ movement between employers. While some cities and states have such bans in place already, the FTC’s decision could terminate them across the U.S. in the not-too-distant future.
“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.
Health care played an outsized role in FTC’s move to eliminate noncompetes.
Hospitals, health systems and providers of almost every type – including HME stakeholders – frequently use noncompetes to prevent their employees from job-hopping in extremely competitive labor markets.
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.
“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.”
Details on the noncompete ban
The elimination of noncompete agreements will create new challenges for some employers.
It may create new employers as well, however, with the FTC estimating that new business formation will grow by 2.7% with the ban in place, creating more than 8,500 new businesses each year. The FTC also forecasts that innovation will increase, with an average estimated increase of 17,000-29,000 more patents each year over the next decade.
“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,” the FTC’s Khan continued.
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.
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.
Exceptions to the new rule
But there are some exceptions.
For example: 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.
Additionally, the FTC’s noncompete ban will include exemptions between the buyer and seller of a business. With HME dealmaking primed to pick up moving forward, especially if the macroeconomic environment stabilizes and interest rates come down, that could wind up being a critical caveat.
“Most of the commenters who supported some form of exception for noncompetes 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.”
The final rule does not impact trade secret laws and non-disclosure agreements, 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.
