On July 13, 2021, President Biden signed an Executive Order directing the Federal Trade Commission (“FTC”) to take actions on anti-competitive labor practices, including employee non-compete agreements for medical spas and medical practices.
This is not the first step toward federal regulation of non-compete agreements. In October 2016, President Barack Obama issued a “State Call to Action on Non-Compete Agreements” to “address wage collusion, unnecessary non-compete agreements, and other anticompetitive practices.” In Congress, multiple bipartisan bills aiming to ban non-competes have fallen by the wayside since that time. More recently, the FTC hosted a workshop in January 2020 “to examine whether there is a sufficient legal basis and empirical economic support” to restrict non-competes.
The argument against non-competition agreements is that they can discourage workers from seeking out higher-paying jobs in their geographic areas and make it difficult for them to seek gainful employment in their fields. Additionally, such arrangements can be difficult for lower-wage workers to defeat, since they typically lack the financial wherewithal to seek legal recourse. It is not possible, at this nascent stage, to ascertain how the FTC will interpret and enforce such directives. As such, the impact on medical spas and physician practices remains to be seen.
While non-competes are fairly common in the realm of medical spas and medical practices, they still must have limitations in order to be enforceable. A few states have, in fact, adopted laws and rules that prohibit these provisions, except in very limited circumstances. Even in states that generally allow non-competition arrangements for licensed professionals, there still are limitations on their scope. Generally, the permissible goal for a non-compete is to protect trade secrets and proprietary information that would damage the business or provide an unfair advantage to the former employee. From a public policy standpoint, the clauses still need to be narrowly written to achieve that goal and not deprive the community of a trained and skilled professional.
It is important to note that an Executive Order is not a new law. Such an order cannot change existing law or give an agency more power than it currently has. An Executive Order can, however, direct the agency to refocus their priorities or to change their interpretation of existing law. Much remains to be done before any ban or limitations on restrictive covenant agreements by the FTC become reality. In the instant case, legal experts appear divided on whether the FTC has the power to enforce such a ban on non-competes. The FTC does have authority to act against “anti-competitive practices,” which they define as unfair business practices that are likely to reduce competition and lead to higher prices, reduced quality or levels of service, or less innovation. It seems possible, therefore, that the FTC would have authority regarding non-competes in the context of “anti-competitive practices.”
If the FTC engages in rulemaking, it is unclear what level of regulation it may pursue. Will the FTC seek to ban non-competes entirely? Will it take a more nuanced approach, imposing restrictions on non-competes only for low-wage workers, as a number of states have done? Will the FTC also try to regulate other restrictive covenants, such as non-solicitation and non-servicing provisions? Moreover, if the FTC exercises its rulemaking authority to regulate restrictive covenants, will anyone challenge its legal authority to do so and what will the courts say? All these questions, and many more, remain unanswered.
For now, if they are not already doing so, employers should start thinking about how to protect their business interests if the FTC were to ban or limit some or all non-competition agreements or other restrictive covenants.
Law Offices of George W. Bodenger, LLC is a boutique legal practice providing sophisticated legal services to a broad range of healthcare providers. The Firm has significant experience in drafting, negotiating and enforcing non-competition arrangements involving licensed health care professionals. Please contact George W. Bodenger at 610-212-5031 or gwb@bodengerlaw.com if you have any questions regarding these matters or if you would like additional information about the Firm.