Non-Compete Clauses Update for Physician Leaders

The Federal Trade Commission (FTC) announced in a press release on January 5, 2023, that it was proposing a new rule that would forbid all non-compete provisions restricting workers. The press release followed a 3-1 vote by the FTC to publish a notice of proposed rule-making in the Federal Register. This denoted the first step toward adopting regulations, but does not infer the regulations are binding.

Once a proposal is published in the Federal Register, the public has a 60-day period during which to submit commentary about the proposed regulations. The succeeding process is for the FTC to review and consider the public commentary, make revisions to the proposed regulations if warranted, and adopt final regulations with comment. Upon completion of the process final regulations are published in the Federal Register.

The January 5, 2023, press release outlined a national prohibition on the use of non-compete clauses. Non-compete clauses restrict an employee from competing with the employer’s business once the employee leaves, whether voluntarily or involuntarily. The extent of the courts’ enforceability of non-compete clauses typically has been a function of state law with marked variability. State laws, policies, and court precedents governing the extent to which non-compete clauses are enforced vary.

The FTC’s proposed rule would make it illegal to enforce non-compete clauses and employers would be required by law to rescind existing non-compete restrictions. The impact this would have on physician employment contracts is colossal. Physicians across the country eagerly await the published rule.

Jump forward to May 30, 2023, when the National Labor Relations Board (NLRB) general counsel sent a memo to all regional directors, officers-in-charge, and resident officers articulating the view that the preservation and enforcement of non-compete clauses in employment contracts breaches the National Labor Relations Act (NLRA) but for limited situations.

The memo by the general counsel contends that overbroad non-compete clauses are unlawful because they discourage employees from exercising their rights under Section 7 of the NLRA, which protects employees’ rights to take collective action to improve their working conditions. Specifically, the non-compete clauses interfere with employees’ capacity to:

• Expose untenable work conditions to secure better-quality working conditions.

• Carry out collaborative appeals to secure improved working conditions.

• Accept employment with local competition to secure improved working conditions.

• Solicit co-workers to work for local competitors.

• Engage in protected activity, including unionization, with other workers at an employer’s workplace.

Non-compete provisions certainly can thwart employees’ exercise of Section 7 rights when employees construe these provisions as denying them the ability to change jobs by eliminating other employment opportunities that they qualify for based upon experience, aptitudes, and preferences as to type and location of work.

For example, employees know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory right to organize and act together to improve working conditions. Their bargaining power is undermined in the context of lockouts, strikes, and other labor disputes, and their attempt to improve working conditions is lost.

Physician leaders must recognize that an interagency approach to limit restrictions on the exercise of employee rights, including limits to employees’ job mobility, is a signal to act in concert to abolish non-compete clauses in physician employment contracts. The time to act is now.

Regulations.gov – Non-Compete Clause Rule (NPRM)