A federal judge's ruling this week that blocked the Federal Trade Commission's near-total ban on noncompete clauses in employment contracts is creating more uncertainty for healthcare employers as they await the agency's next move.
Federal regulators have cracked down on what they view as anticompetitive behavior in recent years, particularly in healthcare. The FTC's nationwide noncompete ban will no longer take effect Sept. 4, but that doesn't mean the issue is resolved.
Related: Federal judge blocks FTC noncompete ban
Noncompete agreements are common in the healthcare industry. Many organizations, including hospitals, health systems, physician groups, insurance companies and pharmacy benefit managers, use the agreements in employment contracts to protect business interests and ensure competitors don't obtain proprietary information.
Here's a look at the FTC's possible next steps and what they could mean for healthcare.
1. What did the court decide?
Judge Ada Brown ruled Tuesday the FTC does not have the authority to enact its "unreasonably overbroad” noncompete ban, so the rule will not take effect next month, according her opinion in the U.S. District Court for the Northern District of Texas.
Brown, who delayed the ban in July, wrote the FTC’s proposed ban was “arbitrary and capricious,” and the agency failed to provide sufficient evidence that would justify the sweeping approach. The U.S. Chamber of Commerce and the Texas-based tax firm Ryan LLC that brought the lawsuit against the FTC had warned the rule would retroactively invalidate 30 million employment contracts and preempt state regulatory actions.
Attorneys say Brown's decision was no surprise.
“I think we all anticipated there being significant challenges to that,” said Jan Rybnicek, a partner at law firm Freshfields. “It takes a hammer to the problem rather than a scalpel.”
2. What are the FTC's options?
The FTC could appeal Brown’s decision to the U.S. Court of Appeals for the 5th Circuit. The agency said in a Tuesday statement it is “seriously considering” an appeal, but attorneys say getting the higher courts to reverse Brown’s decision might be an uphill battle.
“The 5th Circuit is not necessarily the most advantageous grounds,” Rybnicek said. “That jurisdiction is a little bit more skeptical of independent agency overreach.”
Depending on how the appellate court may rule, the case could make it to the Supreme Court, which has also been skeptical of administrative agency power. In June, the court overturned Chevron v. Natural Resources Defense Council, a 1984 decision that gave federal regulators broad authority to interpret unclear laws.
The FTC has said Tuesday's ruling does not remove its authority to challenge noncompete bans on a case-by-case basis.
3. Will other cases on the FTC's rule continue?
Attorneys on noncompete ban-related cases in Pennsylvania and Florida could see them as moot, given Tuesday's ruling blocked the ban nationwide, but those cases could continue if the FTC appeals the Texas case.
Ultimately, the attorneys are likely to wait and see how the FTC responds.
The FTC's noncompete ban has gotten mixed reviews in the courts.
Chief Judge Timothy Corrigan of the U.S. District Court for the Middle District of Florida had a similar reaction to the Texas judge, granting a preliminary injunction on the ban last week.
But Judge Kelley Hodge of the U.S. District Court for the Eastern District of Pennsylvania decided against a preliminary injunction in July. The FTC could choose to pursue the Pennsylvania case for a more favorable ruling, Rybnicek said.
4. How does the case affect healthcare employers?
An FTC appeal would mean more waiting for healthcare organizations.
“There’s not going to be any certainty on this for a while,” said Jason Weber, an employment attorney at law firm Polsinelli.
Since the ban was proposed in January 2023, health systems have been rethinking their use of noncompete agreements, and some physicians have refused to sign contracts that include them.
Kevin Goldstein, an antitrust lawyer at law firm Winston & Strawn, said Tuesday’s ruling is a reprieve for employers that use noncompete agreements. If the FTC's ban ultimately fails, state lawmakers and regulators may make these issues more of a priority, he said.
For-profit health systems HCA Healthcare, Universal Health Services, Tenet Healthcare and Community Health Systems declined to comment or didn’t respond to requests for comment about the ruling and how it would affect employment contracts.
Nonprofit systems Kaiser Permanente, CommonSpirit Health and the Mayo Clinic also declined to comment. A Providence spokesperson said the system expects a limited impact and doesn't typically require employees to sign noncompete agreements.
5. How are providers reacting to the ruling?
Healthcare groups had mixed reactions to Tuesday’s ruling.
Chip Kahn, president and CEO of the Federation of American Hospitals, said in a news release Tuesday the court made the right call in preventing a rule that would “create an unlevel playing field for tax-paying hospitals.” The rule would have exempted some nonprofit providers, which do not pay taxes.
“We have been clear from the start that this rule would threaten patient access to care by making it more difficult for hospitals to recruit and retain physicians and invest in training and technology,” Kahn said.
Dr. Steven Furr, president of the American Academy of Family Physicians, said in a statement he is disappointed by the ruling, arguing that noncompete rules can jeopardize long-term relationships between patients and physicians.
The American Medical Association did not respond to a request for comment.
6. What should employers do while they wait for the FTC's next steps?
Polsinelli’s Weber said companies should try to reduce confusion by educating employees on the ruling and emphasizing that noncompete obligations remain in effect.
Weber said employers also have a good opportunity to assess their existing agreements and reevaluate whether noncompete clauses are essential to protecting their businesses. For example, employers could use less-restrictive options such as non-solicitation covenants, he said. That would block physicians from actively taking patients or colleagues with them when joining another health system.
