At its simplest, a non-compete contract entails one party legally agreeing to not enter into or start a similar profession or trade in competition against another party. President Biden’s July 9, 2021 Executive Order on Promoting Competition in the American Economy, encouraging the Federal Trade Commission (FTC) to limit or ban noncompete agreements, may impact their use going forward. This curtailment may open new opportunities for job growth and entrepreneurship among physicians and other healthcare professionals.
According to a recent The National Law Review article, while the language in Executive Order, Section 5(g), refers to the “unfair” use of noncompete clauses, the Biden administration’s explanatory statement makes clear that “the President encourages the FTC to ban or limit noncompete agreements” altogether. Roughly one-half of private-sector businesses require at least some employees to enter non-compete agreements, which are typically used to protect trade secrets and confidential business information, though they also hinder employees from finding work elsewhere, primarily at competing companies.
Although the executive order could have far-reaching consequences, the FTC is not expected to act quickly. The executive order could also face court challenges if and when the FTC did act, although the agency could mitigate such actions by targeting less controversial aspects of non-compete contracts like those affecting low-wage workers who are unlikely to hold any trade secrets or other contested assets. In fact, a handful of states and territories already have bans on non-competes for low-wage workers, making similar such actions by the FTC more likely to stand up to legal challenges.
In the healthcare sector, physicians regularly sign non-compete agreements to restrict them from leaving, setting up their own competing practices nearby (eg, within 50 miles), or taking their patients; however, there is a growing trend of corporate medicine supplanting the traditional private practice. Last year was the first year during which less than half (49.1%) of physicians worked in private practice.
Provider groups are said to be generally opposed to a broad ban on noncompetes or other restrictive covenants for physicians, arguing for their need in specific cases. However, according to a statement made by Claire Ernst, associate director for government affairs at the Medical Group Association, physician and medical groups should have the ability to engage in these free-market negotiations as long as they support a sustainable competitive environment.