By: Christopher A. Parrella, Esq., CPC, CHC, CPCO
Parrella Health Law, Boston, Ma.
A Health Law Defense and Compliance Firm

The Federal Trade Commission’s (FTC) recent finalization of a rule that largely prohibits non-compete clauses marks a pivotal shift in employment law across the United States, significantly impacting various sectors, including healthcare. Scheduled to take effect in late August or early September 2024, this rule, barring successful challenges in federal court, will reshape how healthcare entities manage their employment contracts and protect their business interests.

Understanding the Non-Compete Rule
The new rule makes it unlawful for employers to enter into or enforce non-compete agreements with employees, with very few exceptions. This broad definition encompasses a wide range of workers, including employees, independent contractors, interns, and volunteers, essentially covering most forms of worker relationships in the healthcare sector.

Specific Implications for Healthcare
Healthcare and life sciences industries have traditionally relied heavily on non-compete agreements to safeguard proprietary information and maintain patient and client relationships. These agreements have been crucial in preventing professionals, such as physicians and senior clinicians, from joining competing practices where they might use closely held knowledge or patient connections to the detriment of their former employer.

Under the new FTC rule, most existing non-compete agreements will become unenforceable unless they involve senior executives who meet specific criteria, such as having significant policymaking functions and earning above a certain income threshold. These criteria aim to balance protecting workers from restrictive employment practices while still allowing high-level executives to be bound by non-competes under certain conditions.

Legal Challenges and Industry Response
The rule has already faced substantial opposition, with lawsuits filed seeking to delay its implementation and challenge its legality. Key arguments against the rule involve the “major questions doctrine,” suggesting that the FTC may have overstepped its regulatory authority without explicit congressional approval. The outcomes of these legal challenges could lead to significant variations in how the rule is applied across different states or even lead to its overturning.

Strategic Adjustments for Healthcare Entities
Healthcare organizations should begin assessing how this rule will impact their operations and consider alternative strategies for protecting intellectual property and maintaining competitive advantages. Strategies may include:

• Enhancing confidentiality agreements and safeguarding trade secrets more rigorously.
• Rethinking recruitment and retention strategies to emphasize workplace culture, career development opportunities, and other incentives that align with legal standards.
• Carefully reviewing and revising existing employment contracts to comply with the new regulations while still protecting organizational interests.

Conclusion
The FTC’s non-compete rule represents a significant change that requires careful attention from healthcare employers. As the healthcare sector often involves complex considerations around patient care continuity and proprietary research, navigating these changes will require thoughtful legal and strategic planning. Parrella Health Law is prepared to assist healthcare organizations in adapting to these changes, ensuring both compliance with the new rule and the continued protection of critical business interests. If you’d like to discuss the application of the rule to your organization, please call us at 857-328-0382 or email me directly at cparrella@parrellahealthlaw.com

Christopher Parrella, ESQ, CPC, CHC, CPCO, is the founding partner of Parrella Health Law in Boston, Mass. The firm focuses exclusively on healthcare defense and compliance matters. Chris also travels the country on behalf of a wide range of healthcare organizations, lecturing on a variety of health care enforcement and compliance topics. Chris is one of a handful of health care attorney’s that are also Certified Professional Coders (CPC) and is a member of the AAPC’s National Legal Advisory Board and Ethics Committee.  He is also a Certified Professional Compliance Officer (CPCO) and Certified in Health Care Compliance (CHC.)