By Aaron Morgenstein, MD

Physician non-compete clauses have been a controversial topic for many years. These clauses within contractual agreements prevent physicians from joining or operating a competing practice within a certain distance or timeframe. With the Federal Trade Commission (FTC) looking into non-compete clauses, many people have wondered whether the FTC will finally end physician non-compete clauses.

On January 5, 2023, the FTC proposed a new rule that would ban employers from imposing non-compete clauses as they appear to violate section 5 of the FTC Act, which covers unfair employer practices. This would apply to employees and independent contractors. The FTC states that non-competes “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting a new business.” Much like the FTC, physicians around the country are aware of the negative consequences of working for medical facilities with excessive non-compete clauses.

The FTC provides a 60-day window that allows the public to comment on proposed rule changes. The comment period for discussion about non-compete clauses ends March 20, 2023. You are welcome to comment.

Then, if the FTC elects to make rule changes, those changes would take effect 180 days later. All current and past employment contracts would be forced to comply with the rule changes at that point.

It must be noted that several states currently restrict non-competes or have limitations on them so that employers can not prevent employees from earning a livelihood. Many physicians view the non-compete clauses as a threat from their employer that they will legally pursue them if they violate the non-compete based on geographic distance and time. Generally, most of these non-competes are from one to two years. Although many employment attorneys state that there are plenty of case law files to demonstrate that non-competes are excessive and illegal, physicians fear the financial investment that must be made to fight off these non-competes.

There is excitement within the physician community that physicians will finally be free from non-compete clauses that limit and restrict career mobility, flexibility, salaries, and freedom. Although it’s exciting to think that the government may outlaw non-competes for physicians, we suggest that physicians reserve their excitement for now.

We review five reasons physicians might want to reserve their celebrations until the federal government and court system thoroughly weigh in on the legalities of non-compete clauses in physician contracts.

1. Even though the FTC has regulatory power over anti-competitive business practices, it will consider the general public’s opinions. Although the FTC is an independent federal agency, it must weigh the public opinions within this 60-day “comment” period and potential legal battles in the future if they were to outlaw physician non-competes. We expect large health care systems, and their lobbyist to fight the FTC on these proposed changes to non-competes in medicine.

2. What will the FTC do about non-profit hospitals? Although verbiage from the FTC members suggests that the commission intends to treat non-profits like for-profit hospitals, it needs to be clarified if this will occur. Technically section 5 of the FTC Act does not apply to “an entity that is not organized to carry on business for its own profit or that of its members.” How could non-competes be enforced at one hospital but not at another in the same state? This would likely bring legal battles if all hospitals were not treated similarly regarding the legalities of physician non-compete clauses.

3. Currently, the FTC does not define or provide significant guidance on non-competes or restrictive covenants for physicians. It might be a significant jump for the FTC to completely outlaw non-competes since it was not better defined in the past. Much of the current language about non-competes and their reasonability has been seen on the state level and in the courts. For example, the FTC does not currently define the geographical distance or time relatable to non-competes.

4. The FTC may take an alternative route rather than outlaw non-competes altogether. Have you heard of a “rebuttable presumption” approach? This is what many believe the FTC may do. A rebuttable presumption is where the FTC would allow non-competes to remain in place for some but not others. This may benefit low-wage and non-skilled professionals. At the same time, non-competes would stay in place for high-earning and skilled professionals like physicians.

5. Legal challenges are likely no matter what the FTC says. Health care systems and large private medical practices will legally fight to enforce non-competes no matter what the FTC decides. They will argue that non-competes help to stabilize patient care by limiting physicians from leaving the system. They will also argue that they place a heavy investment in physicians’ education, training, and recruitment to support the need for non-competes. More so, if there are conditional regulations such as when and when not the non-competes are enforceable, they will use this to their legal advantage to fight for the existence of non-compete clauses. Even if the FTC outlaws physician non-competes, legal challenges could take years to resolve.

Final thoughts

While it is yet to be seen whether the FTC will actually manage to eliminate physician non-compete clauses, their efforts are a step in the right direction for physicians and patients. Based on the above reasons, physicians should reserve their excitement about the FTC altogether outlawing non-compete clauses. If the FTC does not outlaw physician non-competes, it’s worth it to all physicians that we work together to fight these unfair non-compete clauses at the state level. At the state level is where physicians might have greater luck at having non-competes outlawed.

Aaron Morgenstein is a board-certified orthopedic surgeon.