Sorting Through Recent Overturns of Government Bans on Noncompete Agreements

Last week, a federal judge struck down the Federal Trade Commission (FTC) ban on noncompete agreements in employment contracts, with the judge noting that the FTC had “exceeded its authority” with an “unreasonably overbroad” prohibition.

The ban was scheduled to take effect nationally on Sept. 4th.

If that bit of word salad is confusing, simply put, the FTC wants to ban the use of noncompete agreements, but this court decision has allowed them to continue…for now.

Noncompete agreements restrict employees from working with or starting competing businesses within a certain geographical area and time frame after leaving their employer. They have also long been a contentious issue.

And while the FTC can appeal the Court’s decision, for the healthcare industry in particular, the ban (which exempts nonprofit entities) would mark a significant shift in labor regulation, with implications for healthcare professionals, patients, and systems at large.

For those in the healthcare workforce, the Court’s decision could substantially affect career mobility, as noncompetes can restrict a provider’s capacity to relocate or switch employers without facing legal repercussions. This can be especially burdensome in regions with a limited number of job opportunities, or in highly specialized fields where job options are already scarce.

According to some experts, the restrictions imposed by noncompete agreements can also lead to a concentration of employment within a few large healthcare systems, potentially stifling innovation and reducing job diversity.

From a patient care perspective, some argue that the Court’s decision may generate concerns about accessibility and continuity of care, because noncompete agreements can limit a patient’s choice of healthcare providers by restricting their options if their current provider leaves their practice.

It has been further suggested that the Court’s decision to maintain noncompete clauses affects the healthcare industry as a whole – the implication being that prohibiting these agreements would offer providers the ability to move more freely between employers, promoting a more competitive job market, which could encourage healthcare organizations to offer things like better working conditions and higher salaries to attract and retain top talent. That, in turn, would likely contribute to overall improvements in healthcare delivery and provider satisfaction.

Business and hospital groups, however, have opposed limiting use of noncompetes, suggesting that their use protects key investments that companies have made in worker recruitment/retention and prevents intellectual property and trade secrets from being shared with competitors.

Now, it’s worth mentioning that while the state of the FTC’s noncompete ban is still somewhat in limbo at the federal level, in the meantime, states themselves continue to pass their own laws banning noncompetes in healthcare.  

For example, California, Minnesota, North Dakota, and Oklahoma already prohibit noncompete clauses in employment contracts. Ten other states currently prohibit noncompetes for specific healthcare jobs, and four others passed noncompete bans during their 2024 legislative sessions, all of which take effect in 2025.  

The recent court decision to block the government’s ban on noncompete agreements has the potential to foster greater competition within the healthcare industry, but it also raises concerns about provider job mobility and patient care stability.

As the healthcare landscape considers how it will adapt to a potential new reality of no longer using noncompete agreements, stakeholders – including policymakers, healthcare providers, and patients – will need to navigate these challenges carefully to ensure that the outcomes align with the overarching goals of improving care quality and supporting a thriving, equitable healthcare workforce.

However, with much ambiguity still clouding the issue, we may have to wait for the Supreme Court to make a decisive ruling before we have clarity.

Reference Material

1. Federal court strikes down FTC ban on noncompete contracts (healthexec.com)
2. FTC’s blocked noncompete ban has employers in limbo | Modern Healthcare
3. States Take Lead on Health Noncompete Limits With FTC Ban Tossed (bloomberglaw.com)
4. What the FTC’s New Protections From Non-Compete Agreements Mean in a Mostly Non-Profit Hospital Industry | KFF