FTC TAKES AIM AT NON-COMPETITION
AGREEMENTS
By Brandon Kulwicki, Hall, Render, Killian, Heath & Lyman, P.C.
Approximately 45 percent of
primary care physicians in
the United States are subject
to non-competition agreements.
Despite the prevalence
of these agreements amongst health care
providers and in the health care industry,
physician non-competition agreements
have recently been the subject of heightened
scrutiny by both state and federal
governments. The Biden administration and
the Federal Trade Commission (FTC) have
recently expressed publicly that non-competition
agreements may go too far in restraining
trade and promoting anti-competitive
practices. As a result, the FTC and the Biden
administration have hinted at potential
future rulemaking that would subject noncompetition
agreements to uniform federal
standards.
Despite this scrutiny, non-competition
agreements have historically been enforced
independently by state common law. However,
many legal experts question how long
the common law approach to non-competition
agreements will prevail. In July 2021,
President Biden indicated a preference for
uniformity by issuing Executive Order 14036.
The Executive Order, known as the Executive
Order Promoting Competition in the American
Economy, outlines 72 competition-related
initiatives that President Biden believes
should be carried out by federal agencies to
promote the well-being of the United States
economy. In commentary to the Executive
Order, President Biden emphasized that
“higher prices and lower wages caused by
lack of competition are now estimated to
cost the median American household $5,000
per year.” By increasing competition within
the American economy, President Biden
hopes to lower prices, increase wages for
workers, and promote overall innovation.
The Executive Order also specifically
encourages the FTC to ban or limit the use of
non-competition agreements across industries,
stating that “to address agreements
that may unduly limit workers’ ability to
change jobs, the Chair of the FTC is encouraged
to consider working with the rest of the
Commission to exercise the FTC’s statutory
rulemaking authority under the Federal
Commission Act to curtail the unfair use of
non-compete clauses and other clauses or
agreements that may unfairly limit worker
mobility.” President Biden believes that limiting
or even banning physician non-competition
agreements, which affect some 36
to 60 million workers throughout the United
States, will empower workers to demand
higher wages and receive more dignity in the
workplace.
While the FTC has yet to act on President
Biden’s request, the existence of the Executive
Order does signal a major victory and
step forward for those that are opposed to
physician non-competition agreements.
The push for limiting or even banning noncompetition
agreements at the federal level
is unprecedented and may require many
health care providers to re-evaluate the enforceability
of non-competition agreements
within their physician employment contracts.
Based on President Biden’s Executive
Order, it is unclear whether the FTC
will attempt to ban non-competition
agreements altogether or take a more
tailored approach to limiting their use.
However, the mere existence of the
Executive Order makes inaction by
the FTC regarding non-competition
agreements unlikely. Regardless of the
action taken by the FTC, many experts
believe that any such rule proposed by
the FTC would be challenged in court
because “it is unclear whether the FTC
possesses authority to issue rules that
supplant state law governing noncompetition
agreements.”
As background, the FTC was originally
designed for the sole purpose of
interpreting and prohibiting unfair methods
of competition. Since the inception of the
FTC in the early 1900s, the administrative
agency has focused more on defining unfair
methods of competition on a case-bycase
basis rather than establishing broad
rules for uniform enforcement. However, as
new members have funneled into the FTC,
the agency appears intent on establishing
broader rulemaking authority. In fact, in a
recent University of Chicago Law Review article
written by Rohit Chopra and Lina Khan,
the current FTC chairperson, the authors
explained that “the Commission has in its
arsenal a far more effective tool that would
provide greater notice to the marketplace
and that is developed through a more transparent
and participatory process: rulemaking.
Through engaging in rulemaking, the
Commission could define “unfair methods of
competition through processes established
by the Administrative Procedure Act.” Additionally,
and potentially most alarming to
health care providers that rely on non-competition
agreements, the authors closed their
article by explaining that non-competition
agreements in employment contracts are
likely a good place to begin establishing the
FTC’s rulemaking authority. Chopra and Khan
believe that establishing an FTC rule regarding
the enforceability of non-competition
agreements “would give notice to a much
larger set of market participants than addressing
non-competes through adjudication.”
Despite the uncertainty surrounding the
rulemaking authority of the FTC, it is likely
that the scope of any forthcoming rule
proposed by the FTC will determine the
likelihood of a legal challenge. For example,
a broad attempt to completely ban noncompetition
agreements is most likely to be
challenged by business advocacy groups.
In contrast, a more tailored approach at
limiting their use is far less likely to be challenged
in court. For these reasons, many
legal experts believe that the FTC will likely
issue a proposed rule that “only prohibits
non-competition agreements for lower
income workers.” Fortunately, if the FTC takes
this approach in handling President Biden’s
Executive Order, physicians and health care
providers are less likely to be affected right
away.
HEALTH ALLIES
12 | DALLAS MEDICAL JOURNAL • April 2022