The Low Down on the New “Almost Total Ban” on Non-Competes -Direct Implications for Practice Owners and Steps to Take – PART ONE!

My phone has been ring incessantly since the Federal Trade Commission (FTC) issued the ruling on non-compete clauses on April 23, 2024. I decided this was the most effective way to share my thoughts and opinion on this matter, plus offer some concrete albeit strategic suggestions for practice owners on what I think you need to do or think about in light of this. I also included answers to the most common questions I have received thus far. For starters, there are already legal challenges to this final rule including by the US Chamber of Commerce so we do not whether the rule in its current state will even exist in 120 days. FYI – Here is the working definition of a non-compete as per the FTC– Any contractual term or condition, whether written or oral, that prevents an employee from seeking or accepting employment with a different employer, or running their own business, in the United States, after the conclusion of their current employment. The scope of new employment in a related field or geographical area are not factors.

The basic take aways and what to include on your “to-do” list:

1. This takes effect in 120 days from the ruling getting published in the Federal Register, which brings us to August 21st.

2. On or before the effective date you must not include new non-compete agreements /clauses in agreements with employees.

3. On or before the effective date, you must notify current employees with non-compete agreements that such agreements will not be enforced

4. Restrictions prohibiting employees from competing during the term of their employment remain permissible and enforceable.

5. As with all rules, there are exceptions:

a.  Existing Non-Competes of Existing Senior Executives can remain in place and are enforceable.  Generally, “senior executives” are highly compensated individuals with enterprise-wide decision-making authority and further defines as making over $151,164 in the prior calendar year.   In therapy practices for some of you, you may have Clinic Administrators, Regional Directors, CEOs, CFOs, COOs that may fall into this category. (This limited exception will still prohibit employers from entering into or enforcing new non-compete agreements with senior executives, in line with the same comprehensive ban for all other workers on new agreements).

b. Non-compete clauses are permissible if they are part of a sale of a business entity.  According to this exception, non-compete clauses are allowed if they are entered into by a person pursuant to a bona fide sale of a business entity. assets.

A few questions many therapists have asked me:

Q:  What happens if I do not comply?

A: No one wants to become the poster child for this so take this seriously. Not following it could be considered an unfair method of competition, which violates Section 5 of the FTC Act and carries fines, penalties, and injunctive relief.

Q: What about states that have their own laws on non-compete agreements/clauses?

A: This federal rule preempts state laws on the issue – so you need to be aware of both and realize that some states (hello California) have tougher laws on this issue already on the books!

Q: Can employers use NDAs and still have non-solicitations clauses in employment agreements?  

A: Yes as long as the NDA or non-solicitation clauses are not so restrictive that they actually prevent someone from practicing their profession and from working.

Non competes in our industry were often what I would consider unenforceable to begin with, and most practice owners used them as a deterrent.  Now is the time to really look at other strategies and ideas to:

• Get comfortable with the fact that some employees will leave your employ and go off on their own, and that can be okay!  A good example is California – they have a 150-year-old law on the books that has banned most non-compete – yet we all know how Silicon Valley businesses have long thrived regardless of the law, or perhaps because of it….
•  Facilitate loyalty and commitment to your practice so that some admin employees and therapists will come to the conclusion that they would rather work for you than for themselves or someone else.
• Take an honest look at your current employees – who would you say are “key”, who has one foot out the door, who might be most likely to see this as an opportunity.
• Review your existing contracts to see if you may need to add, alter or bolster any non-disclosure, confidentiality, trade secret or non solicitation clauses.

Stay tuned for Part Two where I will take a deeper dive.

(Written by Iris Kimberg without the help of AI)