Update (1/23/23): ACEP is collecting stories of how non-compete clauses in employment contracts have impacted emergency physicians to inform its advocacy efforts. Submit your story on this anonymous form.
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Many of you have probably seen in the news that the Federal Trade Commission (FTC) proposed to ban non-compete clauses in all employment contracts last week, which could impact many of you as emergency physicians if such a policy is eventually finalized. The ban would also apply retroactively and affect current contracts that include non-compete clauses. While this may seem like a game-changer, I want to start off with a few caveats:
- First, this is a proposed regulation, so the FTC still needs to gather public comments and eventually issue a final reg. The FTC also could ultimately decide not to issue a final reg if it wishes. Nothing is final until it is final!
- Second, the FTC is also seeking comment on some alternatives to a complete ban, as described below, which would have a more tempering impact on the marketplace. The FTC could finalize one of these alternatives in any final reg.
- Third, there could be a lag in when the policies in any final reg would be implemented (this could be multiple years), and there could be legal challenges which would further delay an effective date.
Now that we have that out of the way, let’s highlight some key proposals in the reg (and I want to especially thank my colleague, Erin Grossmann, for combing through the reg). First and foremost, the FTC defines a non-compete clause as a “contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employee.” The FTC clearly identifies these clauses as “unfair” through restrictive conduct that negatively affects competition in the marketplace. As the FTC states in the reg, they are exploitative and coercive at the time of the worker’s potential departure from the employer, because they force a worker to either stay in a job they want to leave or choose an alternative that likely impacts their livelihood.
ACEP agrees with this characterization of non-compete clauses. In fact, when the reg was released, ACEP tweeted that our organization “fundamentally opposes non-compete clauses—which limit the right of emergency physicians to freely practice medicine in their communities—and we're deeply pleased to see the FTC's new proposed rule to ban these predatory clauses.”
You as emergency physicians have noted in the past the overall effects that non-compete clauses have had on your job security and ability to switch jobs—and ACEP is collecting even more information from you all about the impact of non-compete clauses as we respond to this reg. In response to a questionnaire we sent to our members last year to learn more about the impact of mergers in health care (which we used in our comments on a FTC and Department of Justice request for information on the subject), some of you stated that you were forced to sign non-compete clauses in your contracts and told you cannot work at other health systems.
From several respondents to our questionnaire:
- “[Large national group A] within a year began cutting pay and hours and making weekly changes in working hours. Incredibly hard to find a job in this market due to 80-90% of all EP jobs in the greater [metropolitan area in large state] area controlled by two entities, [large national groups A and B] (both beholden to private equity) […] The two have engaged in anti-competitive behavior to drive wages artificially low, force the integration and supervision of nonphysician providers (PAs and NPs) in roles beyond their training, and incorporate restrictive covenants within contracts to limit any possible competition (non-compete agreements for emergency physicians, indemnification agreements, accelerated termination clauses, elimination of due process for termination, and proscriptions against directly competing for emergency department staffing contracts).”
- “Just before the merger, the previous CMG had us sign contracts with fairly vicious non-compete clauses, in attempt, I suspect, to keep their contract with the hospital.”
Interestingly, in its efforts to analyze the impact of banning non-compete clauses among physicians, the FTC found conflicting findings. Using one model from a research paper, the FTC estimates that assuming physicians begin at an identical level of earnings, a physician with a non-compete clause would have an estimated 89 percent earnings growth over a ten-year period, versus an estimated 36 percent for a physician without a non-compete clause. In other words, the physician with a non-compete clause would have earnings approximately 39 percent greater than the physician without. This might seem counterintuitive to you, so I’ll note the FTC points out this finding could actually be a result of correlations between non-compete clauses and other characteristics of employers who tend to use them, rather than actual causation. When using a different model that tries to take into account the actual impact of a ban on non-compete clauses (rather than just their use), the FTC analysis found instead that for a physician with 10 years of experience in the state which enforces non-compete clauses most readily, removing that physician’s noncompete clause via a prohibition would lead to a 12.7 percent increase in earnings. For the identical situation for a physician with just 1 year of experience, the increase in earnings would be 37.4 percent. Thus, this model suggests that a ban on non-competes would lead to higher earnings.
The FTC believes that the best policy would be to ban non-compete clauses altogether; but while the regulation does not propose specific alternatives, it seeks comment on the viability of certain exceptions and alternatives to a universal ban, including a rebuttable presumption approach. In other words, the FTC describes numerous potential alternatives that it wants feedback on, but isn’t actually endorsing a specific one of those.
Under a rebuttable presumption approach (which is one of the main alternatives the FTC presents in the reg), the presumptive policy would be that non-competes would not be allowed, but an employer could potentially argue to include or keep in employee contracts — based on certain conditions. For example, some states, like Washington, create salary thresholds to limit when non-compete clauses are permissible. The FTC discusses an alternative in which noncompete clauses would be banned for everyone who makes less than $100,000 per year, but there would be a rebuttable presumption to workers who earn more than that amount per year. Obviously, if the FTC were to finalize such a policy (which again is not proposed but simply listed as one potential alternative), most of you would be subject to the rebuttable presumption. One other possible condition to which the FTC could ultimately decide to apply the rebuttable presumption is highly skilled workers—which again would affect all of you.
An important question related to the rebuttable presumption approach is what the test for rebutting the presumption should be. If implemented, the FTC would want to make such an approach pretty restrictive and make a ban on non-competes the clear default. As stated in the reg, an employer could be allowed to rebut the presumption where the employer “shows by clear and convincing evidence that the non-compete clause is unlikely to harm competition in labor markets or product or service markets, or identifies some competitive benefit that plausibly outweighs the apparent or anticipated harm.” The test could focus exclusively on either of these two prongs: the unlikeliness of harm to competition, or the presence of a competitive benefit that plausibly outweighs the apparent or anticipated harm to competition. A term other than “clear and convincing evidence,” such as “preponderance of the evidence,” could also be used. Regardless of what standard would be put into effect, the creation of a rebuttable presumption gives an opening for the employer to argue for there to be a non-compete clause in the contract.
Finally, as another alternative to banning non-compete clauses, the FTC seeks comment on adopting disclosure requirements related to non-compete clauses. For example, research suggests that many workers often do not find out about non-compete clauses until after they have accepted an employment offer. This concern could be addressed by requiring an employer to disclose to a worker, before making the employment offer, that the worker would be subject to a non-compete clause if hired.
Therefore, overall, if the FTC were to create a rebuttable presumption approach or impose some other limiting policy, we would want to make sure that any such approach or policy does not adversely affect you all. The devil would obviously be in the details!
So, with that said, here are the next steps: ACEP has around two months to respond to the reg (comments will be due in early March), and we are gathering more input from you all in doing so. Fill out this anonymous questionnaire about your experiences with non-compete clauses. By highlighting experiences from you all in our response letter, our comments and proposed recommendations will be even more persuasive and have the greatest chance of ensuring that any final reg truly benefits you all, regardless of how or where you are employed.
Until next week, this is Jeffrey saying, enjoy reading your regs with your eggs!
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