FTC issues final rule banning most noncompete clauses in employer agreements

The Federal Trade Commission April 23 voted 3-2 to issue a final rule that would ban as an unfair method of competition contractual terms that prohibit workers from pursuing certain employment after their contract with an employer ends. The final rule does not apply to existing agreements with executives earning more than $151,164 annually who are in policymaking positions. In addition, although the Commission recognized that it does not have jurisdiction over not-for-profit entities, it reserved the right to evaluate an entity’s non-profit status and noted that some “entities that claim tax-exempt nonprofit status may in fact fall under the Commission’s jurisdiction.” Specifically, it stated that “some portion of the 58% of hospitals that claim tax-exempt status as nonprofits and the 19% of hospitals that are identified as State or local government hospitals in the data cited by AHA likely fall under the Commission’s jurisdiction and the final rule’s purview.”

The rule takes effect 120 days after publication in the Federal Register and includes model language that employers can use to communicate to workers.  The United States Chamber of Commerce has already indicated that it will file suit to challenge the final rule.

AHA had urged the agency to withdraw the proposed regulation or exempt the hospital field.

In a statement shared with the media today, Chad Golder, AHA general counsel and secretary, said, “For all of the reasons the AHA explained in its comment letter, the FTC’s final rule banning non-compete agreements for all employees across all sectors of the economy is bad law, bad policy, and a clear sign of an agency run amok.  The agency’s stubborn insistence on issuing this sweeping rule — despite mountains of contrary legal precedent and evidence about its adverse impacts on the health care markets — is further proof that the agency has little regard for its place in our constitutional order.  Three unelected officials should not be permitted to regulate the entire United States economy and stretch their authority far beyond what Congress granted it--including by claiming the power to regulate certain tax-exempt, non-profit organizations. The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals’ ability to care for their patients and communities.”