FTC Issues Noncompete Warning to Health Care Employers

Andrew Ferguson, chairman of the Federal Trade Commission (FTC), on September 10 sent letters to several large health care employers and staffing companies advising them to perform a comprehensive review of their employment agreements, particularly as those agreements relate to noncompete and other restrictive covenant agreements.  The FTC advised in its press release that it has concerns that many health care employers and staffing companies may include “unreasonable noncompete agreements” in their employment contracts with individuals who serve vital roles, such as nurses, physicians and other medical professionals.

FTC Warning Letter

Along with its press release, the FTC published a template noncompete warning letter to advise health care employers and staffing companies that the agency has strong concerns regarding unreasonable noncompete agreements and post-employment restrictions.  The FTC stressed that it has concerns that noncompete restrictions may unreasonably limit health care professionals’ employment options and thereby limit patient freedom of choice with respect to who provides their medical care.  The FTC highlighted that this issue is critical in the rural areas “where medical services are already stretched thin.”  The agency makes clear in its warning letter that it is dedicating significant resources to enforce the federal law against what it considers to be unlawful noncompetes, “particularly in the healthcare sector.”

The template warning letter states that the FTC has authority under 15 U.S.C. § 45 (the FTC Act) “to investigate unfair methods of competition, including noncompete agreements that are unjustified, overbroad, or otherwise unfair or anticompetitive.”  While the agency recognizes that “narrowly tailored noncompetes” may serve valid purposes in certain circumstances, it advises that many noncompetes “may be overbroad in duration or geographic scope,” or “may be inappropriate for certain roles entirely.”

The FTC issued the template noncompete warning letter on the heels of its decision to not challenge recent federal court decisions enjoining the Biden-Harris Administration’s rule to implement a nationwide noncompete ban based on constitutional grounds. 

This template noncompete letter and recently published press release are clearly a shot across the bow of health care employers and staffing companies which commonly use noncompete agreements in their employment contracts for a variety of health care practitioners.  The FTC advises in its warning letter that health care providers that are utilizing noncompetes that are unfair or anticompetitive under the FTC Act must discontinue them immediately.

FTC Request for Information

It should be noted that the FTC issued a Request for Information Regarding Employer Noncompete Agreements on September 4 “to better understand the scope, prevalence and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions.”  Some of the questions raised in the RFI are as follows:

• What is the name of any employer currently known to you to be using employee noncompete agreements? 
• For what roles, positions or job functions does the employer use noncompete agreements?
• What are the terms or limitations of the noncompete agreements (such as the duration or geographic scope)?
• Does the employer enforce the noncompete agreements?

The FTC’s request for information specifically highlights its concerns about noncompete agreements in the healthcare industry for the reasons set forth above. Individuals or organizations that would like to submit responses to the FTCs request for information must do so by no later than November 3. 

Conclusion

In light of the FTC’s recently issued warning letter, health care employers and staffing companies would be well served to review any noncompete provisions included in their employment agreements to confirm that those noncompetes are reasonable in scope and duration, comply with applicable state law, and are not unduly noncompetitive. 

If you have any questions about your noncompete agreements, please contact Jeffrey Moore or any member of the Phelps Health Care or Labor and Employment teams.