The Federal Trade Commission (FTC) is cracking down on non-compete contracts, and the healthcare industry would do well to take note. The FTC issued non-compete warning letters to several healthcare employers and staffing firms across the US, advising them to review their employee contracts with care. There is no possibility of a blanket ban on non-compete clauses, but the FTC is set to take action if any “anticompetitive” practices are observed in employee contracts.
FTC Chair Andrew Ferguson sent letters to multiple healthcare companies to drive the point home, but those who did not receive a letter are not exempt from its instructions. This makes it doubly important for HR teams to keep up with the changes in the regulatory landscape.
The FTC issued warning letters on non-compete agreements to several healthcare businesses as a reminder to review their employee contracts. (Image: Pexels)
The FTC’s Non-Compete Warning to the Healthcare Industry Sends a Strong Message
Non-compete agreements are documents signed by employees that prevent them from joining a competitor or starting their own business for a specified period of time immediately after separating from the employer. They are primarily utilized to prevent employees from leaking company secrets to a competitor for a brief period. Unfortunately, they are also used to curb employee prospects if they quit, discouraging talent from moving on to better opportunities.
Non-compete clauses have been frequently seen in employee contracts, but there has been a growing demand from employees to ban their use. In 2024, the previous administration finalized a rule to ban non-competes nationwide. The ruling would have invalidated existing contracts and prohibited any attempts to create new ones, barring a few exceptions.
However, despite the initial support for the ruling, many businesses lobbied to have the decision blocked, and a Texan judge soon complied. Now, the new administration has voted to vacate the rule and dismissed appeals, effectively shelving the blanket adoption of this regulation.
What Do the Non-Compete Warning Letters to Healthcare Institutions State?
While the latest non-compete regulation update has stepped away from a blanket ban on these agreements, the FTC’s non-compete warning indicates that any anticompetitive conduct will not be beyond reproach. The FTC’s warning on non-compete to the healthcare sector asked businesses to conduct a comprehensive review of their employee agreements, “including any non-competes or other restrictive covenants,” to ensure they were compliant with applicable laws.
“If your company is currently using non-competes that are unfair or anticompetitive under the FTC Act, I strongly encourage you to discontinue them immediately and to notify relevant employees of the discontinuance,” Ferguson wrote in the letter.
Despite the lack of clear federal laws on non-competes, the FTC has promised to take a case-by-case approach to such agreements to ensure that they are not illegal.
What Else We Know About the Latest Non-Compete Regulation Updates
The FTC clarified that the healthcare companies that had received the letter were not being singled out for investigation. The letters were meant to serve as a reminder for everyone to ensure that their contracts were “appropriately tailored.” All employers, particularly those in the healthcare industry, would do well to review their employee contracts to ensure there is nothing that might be deemed as anticompetitive.
The healthcare industry faces unique pressures, with the sector facing shortages amid an aging population. Restrictions on talent can prove fatal, delaying care and driving up costs. The FTC’s focus here amplifies risks, as unreasonable non-competes could invite Section 5 claims for anticompetitive harm, potentially resulting in injunctions, fines, or contract nullifications.
It’s up to HR to Ensure Employee Contracts Are in Order
HR leaders in the healthcare industry must act proactively to audit employee contracts and classify employee levels to understand where the non-compete clauses are deemed necessary. Avoiding non-competes for low-wage and non-executive staff is a smart move, as there are growing restrictions on using non-compete clauses with this segment of the population. Additionally, seeking legal counsel will be essential as there is considerable confusion on what is and isn’t permissible within the realm of non-compete clauses.
With the FTC’s warning on non-compete agreements, it might also be beneficial for HR teams to explore alternatives like non-disclosure agreements and non-solicitation clauses instead. These agreements protect trade secrets, but they don’t entirely restrict the employee’s freedom to work. The FTC’s non-compete warnings mark a critical juncture for the use of non-compete clauses in healthcare in particular, but it could impact other industries as well.
For HR, this is a call to review, refine, and reform policies to ensure compliance. In the coming months, HR teams have the critical responsibility of monitoring the FTC’s actions and rulings to understand how these regulations evolve. While a blanket ban is not on the horizon, the details of decisions made henceforth could be key to reworking contracts with your own employees.
Do you think the FTC’s warning on non-competes is a prudent move, or does a blanket ban sound like a better proposition? Let us know what you think about the use of non-compete agreements. Subscribe to The HR Digest for more insights on workplace trends, layoffs, and what to expect with the advent of AI.