FTC to vote on banning noncompete clauses

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It appears the Federal Trade Commission (FTC) is ready to ban noncompete clauses that affect an estimated 45% of physicians, along with other clinicians and workers in other sectors of the U.S. economy.

The FTC announced a special open meeting on its proposed rule to ban noncompetes. The meeting is scheduled at 2 p.m. April 23 and will be webcasted online.

“The proposed final rule being considered would generally prevent most employers from using noncompete clauses,” the FTC’s official announcement said. The “noncompetes are a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.”

Affecting health care

The issue may continue being divisive in health care. Some physicians have spoken in favor of a ban, arguing the noncompetes restrict their ability to change jobs while remaining in or near one geographical location. The American Academy of Family Physicians last year argued against noncompetes, arguing they stifle competition, hurt patients’ access to care, and limit physicians’ ability to choose their employer.

The American Hospital Association (AHA) last year argued banning noncompetes “would profoundly transform” the health care labor market for physicians and executives. The association has said health care systems with noncompetes have greater incentives to offer continual training for physicians, executives, and staff, knowing the employees won’t immediately leave with improved knowledge and skills.

FTC deliberations

The noncompete clause rule was published in January 2023 in the Federal Register. FTC Chair Lina M. Khan and Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya estimated noncompetes affect approximately 30 million workers, or about one in five workers in the U.S. economy.

The commissioners’ notice mentioned health care and work conditions of physicians were among the evidence they reviewed. For example, physicians, high-tech workers, hourly workers and chief executive officers were four broad classes of workers that merited specific attention.

One study estimated if physicians begin at identical earning levels, the physician with a noncompete clause would have an estimated 89% earnings growth over a 10-year period, versus an estimated 36% earnings growth for the doctor without the noncompete clause.

“This estimate, however, is based solely on non-compete clause use, and does not consider the impact of enforceability changing,” the FTC notice said. Another model had different estimates of physician earnings based on years of experience, existence of a noncompete clause and enforcement of it.

There are 47 states where noncompete clauses may be enforced under certain circumstances, and the majority of them ban or limit enforceability of the causes for one or two occupations – most commonly, physicians, the FTC notice said.

“There is evidence noncompete clauses increase consumer prices and concentration in health care,” the Commission’s notice of proposed rulemaking said. The contracts hurt business access to talent and have a negative effect on business formation and innovation, according to FTC.

“These harms are significant,” the FTC notice said. “For example, with respect to consumer prices in the health care sector alone, the Commission estimates health spending would decrease $148 billion annually due to the proposed rule.”

There could be greater benefits for workers and consumers more broadly, although the effect is not certain, according to FTC.

“With respect to other industries, if the relationship between non-compete clause enforceability and prices observed in healthcare markets holds, the Commission believes prices would decrease, product and service quality would increase, or both under the proposed rule. Insofar as such effects may be driven by increases in competition … it is likely output would also increase,” the FTC notice said.

Meeting procedure

The FTC has been considering the issue for months and received more than 26,000 comments from members of the public. Due to the volume of response, the Commission will not take additional public comment next week.

In the meeting, the commissioners will vote on publicly disclosing the proposed final rule. Khan will speak, and if the rule is to be disclosed, FTC Office of Policy Planning staff will present details about the final rule. Then the Commission will vote on issuing it.

Khan, Slaughter and Bedoya were involved with the deliberations involving the noncompetes. The notice included the dissenting statement of former Commissioner Christine S. Wilson.

Current Commissioner Melissa Holyoak, a solicitor general in the Utah Attorney General’s Office, was sworn in March 25. Commissioner Andrew N. Ferguson, a solicitor general for Virginia, was sworn in April 2.