On April 23, the Federal Trade Commission (FTC) issued a final rule to ban noncompete agreements that prevent employees from working for competitors or starting a competing business after they leave a job. The FTC determined that it was an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to enter into noncompetes with workers and to enforce certain noncompetes. The rule, set to go into effect in 120 days, would ban new noncompete agreements for all workers and require companies to let current and past employees know they will not enforce them.

Once the rule goes into effect, companies will also have to throw out existing noncompete agreements for most employees, however the agreements may remain in effect for senior executives.

The American Medical Association estimates that between 35% and 45% of physicians are bound by noncompete clauses. The AMA’s House of Delegates voted to oppose non-competes for doctors at for-profit and nonprofit hospitals, hospital systems or who are employed by staffing firms. The AMA has noted that some doctors who are employers and own physician practices may support "reasonable non-competes," while employed physicians might support banning the agreements.

Although the FTC does not have jurisdiction over nonprofit entities, the rule could have significant implications for the healthcare industry. The FTC says it reserves the right to evaluate an entity's nonprofit status, which could include a significant portion of hospitals in the U.S.

Shortly after the rule was released, the US Chamber of Commerce filed a lawsuit in the U.S District Court for the Eastern District of Texas alleging that the FTC lacks the authority to issue the rule and that it is unlawful because noncompete agreements are “not categorically unlawful under Section 5.”

Once the rule is effective, participants can report information about a suspected violation of the rule to the Bureau of Competition by emailing noncompete@ftc.gov. Read more.