The Federal Trade Commission (FTC) voted 3-2 Tuesday to issue a final rule banning new noncompete agreements for all U.S. workers while phasing out existing noncompetes for all employees but “senior executives.” Because the FTC's jurisdiction is generally limited to for-profit entities, however, it is unlikely the rule would apply to nonprofits. 

Under the proposed new rule, impacted employers couldn’t enforce existing noncompetes with workers other than senior executives, defined as those in “policy-making positions” who earn more than $151,164 annually from their employer. Employers would also be required to inform existing non-senior executive employees that their noncompetes no longer bind them, and would be prohibited from initiating new noncompetes going forward. 

The ban will take effect 120 days after publication in the Federal Register, unless a court blocks the new rule. Less than 24 hours after the vote, the U.S. Chamber of Commerce and several other business groups filed a legal challenge in a Texas federal court. Among other arguments, the groups contend the FTC lacks authority to define unfair methods of competition and that the rule is too wide in scope. 

The FTC estimates that banning noncompetes would reduce spending on physician services by $74 to $194 billion over the next decade and increase the number of overall new businesses by an average of 2.7% each year in the U.S. During its public comment period, the FTC received more than 26,000 comments requesting a comprehensive ban, including many from health care workers.

The AMA estimates 37-45% of physicians are impacted by noncompetes. Last year, the organization came out in support of a ban on noncompetes for physicians. The American Hospital Association and Federation of American Hospitals oppose a ban.  

ISMA has worked with lawmakers to eliminate noncompete agreements for physicians in the Hoosier State. Senate Enrolled Act (SEA) 7 (2023) provides that a primary care physician (family practice, pediatricians, and internal medicine) and an employer may not enter a noncompete agreement. The Indiana law, which went into effect on July 1, 2023, also allows other physicians to void a noncompete agreement for cause, although that provision has been the subject of still-pending litigation. 

The latest edition of the ISMA podcast “The Clinic” examines the ramifications of the new federal rule. ISMA will update members as more information becomes available.