FTC Bans Noncompete Clauses, Court Challenges Loom

Lauren Ahearn Lauren Ahearn is a regulatory and quality affairs associate at ASN.

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On April 23, 2024, the Federal Trade Commission (FTC) voted 3 to 2 in favor of a near-total ban on noncompete clauses (1), which limit the ability of workers to change employers within an industry. FTC projects that this rule could reduce health care costs by up to $194 billion in the next decade. In both the proposed and final rule, it cited evidence that noncompete agreements encourage consolidation and drive-up health care prices (2). The American Medical Association estimates that between 37% and 45% of physicians are affected by “noncompetes” (3).

ASN expressed support for this ban when it was first proposed by FTC in April 2023 (4). At the forefront of ASN's response was a desire, above all else, to preserve the patient-doctor relationship. ASN argued that noncompetes have the potential to disrupt these relationships when noncompetes force health care professionals to relocate, thus forcing some patients (especially those in rural communities) to travel long distances to access care.

In addition to voicing support for the ban, ASN expressed concern over the unsolved question of how it will apply to not-for-profit health care employers. In the proposed rule, it was suggested that not-for-profit organizations would be exempt from the ban. ASN asked FTC to clarify this issue and expand the proposed rule by including not-for-profit health care employers, as doing such would level the playing field for all health care employers, including nephrologists. In the final rule, FTC recognized that although it does not have jurisdiction over not-for-profit entities, it reserved the right to evaluate an entity's nonprofit status and noted that “entities that claim tax-exempt status may in fact fall under the Commission's jurisdiction” (5).

The ban is set to take effect 120 days after its publication in the Federal Register; however, it is already being challenged in court. Business groups led by the U.S. Chamber of Commerce announced in May that they are suing FTC and will seek a block to the ban (6). In a complaint filed in a Texas federal court, the nation's largest business lobby argued that FTC lacks the authority to issue rules that define unfair methods of competition. This question over FTC's jurisdiction is political and will likely become a growing topic of debate as we near the upcoming November election. This case will likely reach the Supreme Court, in which the conservative majority has shown deep skepticism toward what it views as agency overreach.