Data from our recent aggregate analysis of our salary and negotiation database showed that 60% of our physician members reported that they had a non-compete as part of their employment contracts. Not surprisingly, our online Facebook communities for physicians have been abuzz about the recent vote by the FTC to ban noncompete agreements on a federal level. While we as a community have been advocating for the end of noncompetes for employed physicians in both for profit and not for profit hospital systems, it’s important to be aware that there are many legal challenges which have already been filed or are likely to be filed. Therefore, it’s still a very good idea to stay vigilant about negotiating favorable terms for noncompetes in your physician contract if you’re not able to exclude them entirely.
Below, we’ll get into the nuances of this vote to ban noncompetes, what it means for physicians in different settings and situations, and what to expect over the coming months and years.
Disclaimer: Please do your own due diligence before making decisions based on this page. Nothing on this page constitutes formal or personalized legal advice. Laws vary based on location and while this information is accurate to the best of our knowledge, may not be up to date or apply in your location or practice setting or situation. We are not formal financial, legal, or otherwise licensed professionals, and you should consult these as appropriate, as many of the statements here are opinions. To learn more, visit our disclaimers and disclosures.
Resources
FTC Announcement on the Vote to Ban Noncompetes Summary Statement
Full document from the FTC on the FTC Vote to Ban Noncompetes
Physician Noncompete Agreements in Employment Contracts: An overview of noncompete agreements and how you should negotiate them if you’re not able to have them removed
Physician Contract Attorney Database: These resources can help you navigate the implications or the new ruling, answer your questions, and help negotiate your physician employment agreements
Physician Side Gigs and Physician Community Petition to End Noncompete Agreements for Hospital Employed Physicians - sign the petition!
What does the FTC vote to ban noncompetes mean for employed physicians? Does it even apply to physicians?
The FTC absolutely intends for the ban on noncompetes to apply to physicians. Many times throughout the document they cite physician contracts specifically and cite comments that refer to the need to get rid of noncompetes to ensure better access to care for patients.
Physicians have long argued that it is hard to justify noncompete agreements in contracts with large employers who would be hard pressed to state that the departure of an individual physician poses a financial threat to a large hospital system or organization. They would contend that these clauses in physician employment contracts are present to hold as leverage over physicians in contract negotiations or when asking physicians to do more without appropriate compensation. Many physicians on our communities cite that the reason they have to stay in positions that are not a good fit are because of noncompete clauses that restrict them from finding other jobs without having to uproot their families. The FTC appears to acknowledge this several times throughout the 570 page document. They specifically state that they have “specific, long-time expertise in the healthcare market” and find that the “evidence supports the final rule’s application to the healthcare industry.” The FTC Commissioner even made a statement implying he thought it was inappropriate that doctors would have to move just to practice medicine or that noncompetes would prevent physicians from working after we saw first hand how important having doctors was during the pandemic.
When will this noncompete ban go into effect? Will it be legally challenged?
This is the much bigger X factor. The vote to ban noncompetes has already been challenged through a lawsuit against the FTC by the Chamber of Commerce, and it is widely anticipated that it will continue to face more legal challenges. The earliest it would possibly go into effect would be the fall of 2024 (120 days after filing).
Critics raise questions about whether the authority to do this is within the FTC’s jurisdiction, as conventionally, noncompetes have been regulated on the state level. Additionally, the Chamber of Commerce asserts that the FTC is allowed by federal law to enforce existing antitrust laws that have been passed by Congress, but not to prospectively enact rules determining what other type of conduct by businesses is anticompetitive. They also state that companies and the economy will suffer, particularly small businesses and startups, who will have a hard time competing with bigger companies trying to poach their best talent and get access to their information.
In short, don’t count on it just yet, and definitely approach this by expecting delays. You may be pleasantly surprised, but in the meantime, don’t make any decisions based on the assumptions that noncompetes will be banned.
Does the FTC ban include both for profit and not for profit / nonprofit hospitals and other employers of doctors?
In the initial document that the FTC put out for public comment last year, there was a lot of speculation that the rule would not apply to not for profit hospital systems or employers. This raised a lot of alarms in the physician community, understandably, as a large percentage of hospital systems claim to be ‘not for profit’ for the tax exempt status.
The FTC made it pretty clear that it wants these noncompetes to apply to these hospital systems as well, specifically calling out nonprofit hospitals in the document. It actually stated that “reports reveal that some such hospitals are operating to maximize profits, paying multi-million-dollar salaries to executives, deploying aggressive collection tactics with low-income patients, and spending less on community benefits than they receive in tax exemptions. Economic studies by FTC staff demonstrate that these hospitals can and do exercise market power and raise prices similar to for-profit hospitals.” One commissioner actually implied in a statement that despite entities registering as a non-profit, if they are in fact organized for the profit of their members, they should and will fall under the FTC Rule.
Whether or not the courts agree will be another question. According to various legal resources, the FTC does not have clear jurisdiction to create rules that apply to non-profit organizations which are not organized to carry on business for their own profit or that of their members. This includes 501c3 organizations, such as many hospital systems. However, others say that not all entities that claim a tax-exempt status are outside of the FTC’s jurisdiction.Bottom line: nobody’s quite sure how this will shake out just yet. Obviously, not for profit hospital systems will try and claim that the FTC ban does not apply to them. You will have to stay tuned. We are hopeful, though, that even if the courts rule that it doesn’t apply to them, that in order to stay competitive with other employers, they will be pushed to remove noncompete clauses from their physician employment contracts as well (one can hope!).
What about the statement that the ban on noncompetes does not apply to highly compensated employees making more than $151,164?
This is a two part statement, with caveats, so don’t assume this applies to you just because you make more than that amount (which most physicians do, according to our aggregate salary statistics on physician compensation).
In the final rule, the FTC statement says that noncompete agreements can be enforced for certain senior executives. However:
This is for existing noncompetes. Existing noncompetes for senior executives can remain in force. Employers are still prohibited from entering into or enforcing new noncompetes with senior executives.
Senior executives are defined as workers earning more than $151,164 annually and who are in policy-making positions.
“Policy-making positions” is key here. Most employed physicians are likely not considered to be in policy making positions (although we wonder if more hospitals and employers will offer physicians some policy making power to get around this!). This may, however, apply to partners in private practices, CMOs, CEOs, and others with leadership positions.
Are there other physicians for whom the FTC ban on noncompete agreements won’t apply?
There are at least two other situations where the FTC has specified that this vote to ban noncompete agreements would not apply. One is for litigation or lawsuits already in progress about noncompetes or a violation of noncompetes. The other is in the case of a sale of a business entity (such as a medical practice) where there is a noncompete involving an individual with an ownership stake in the business.
What are other important things doctors should know about the FTC ban on noncompete agreements?
We are seeing a lot of confusion on our physician communities about what is part of a noncompete and what are other aspects of physician contracts or termination clauses in physician contracts.
Remember that just because you don’t have a noncompete agreement does not mean that the employer can’t specify conditions within the contract, such as non-disclosure agreements or non-solicitation agreements. So, while you may be able to set up a practice nearby, don’t count on your practice allowing you to contact your patients and tell them where you’re going, or take your favorite staff members with you.
Also, know that the FTC ban on noncompetes is intended to apply to all people who are hired for work - so if you are a locums physician, a 1099 employee, or otherwise, the noncompete ban still applies to you.
What should I expect from my employer now that the FTC ban on noncompete agreements has been voted on?
Your employer is technically required to let you know that your noncompete is no longer enforceable if you work for a for profit employer (TBD on the nonprofit employer).
You may see additional statements from the employer reminding you that though the noncompete may not exist, you are still held to the other responsibilities outlined in your termination clause, which may make it hard to leave. And don’t be surprised if they start pushing for you to sign a new contract either now or when your contract comes up for renewal, doubling down on these other aspects of your contract that may make it difficult to leave.
Read more about what to be aware of in termination clauses in physician contracts and make sure you consult with a physician contract attorney before signing anything new.
What if I’m currently negotiating a physician employment agreement? What do I do about the noncompete clause in my contract?
It’s hard to say with certainty how employers will approach this given the known pending challenges to the FTC’s policy. For the time being, we believe you should as always try to have the noncompete removed from the agreement. If that doesn’t work, we still think you should negotiate the noncompete clause down as much as possible to make it more reasonable and less likely to prevent you from leaving a bad situation. We go in depth on many ways you can make the noncompete clause less restrictive in a physician employment agreement here.
The other thing you should expect is that employers or companies that employ doctors will likely double down on other aspects of the termination clause to make it difficult for you to leave. This could include things like not negotiating on tail insurance, having to pay back signing or relocation bonuses, or making it harder for you to get PTO or your bonus structure once you’ve given notice. It’s going to be all the more important for you to be vigilant about the other aspects of your contract.
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We also always recommend working hand in hand with a physician contract lawyer or healthcare attorney that is familiar with physician contracts, as they should be well aware of these nuances and be able to help you navigate this situation. We list several resources in our attorney database for physicians.
Conclusion
While the FTC ruling to ban noncompetes is an important step in the fight for physician career longevity and fair employment contracts and practices, it is far from a done deal at the moment. Please stay vigilant about protecting yourself against unreasonable noncompete clauses, stay up to date about the most current legislation and litigation, and always contact your physician contract attorney if you have any questions. You better believe that employers are discussing this with their attorneys, and as always for all things physician contracts, it’s in your best interest to look out for yourself.