FTC's non-compete clause lifted, but doctors can take action against it locally

Doctors have been waiting to see how the Federal Trade Commission's decision to ban noncompete agreements would play out in court. With a federal judge's decision last week to block the ban, the wait is over.

While the ruling is legally justified, it means that doctors will continue to face the professional challenges that non-compete agreements bring. They should fight for reasonable and narrowly tailored agreements, as non-compete agreements are unlikely to disappear any time soon.

Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled in favor of the plaintiff in the highly anticipated Ryan LLC v. FTC case. The court found that the FTC does not have the authority to prohibit practices it finds unacceptable. Brown further argued that the FTC exceeded its statutory authority in implementing this rule, stating that the ban was arbitrary and capricious.

This is not surprising, especially given that the US Supreme Court has opened up the possibility of challenging agency opinions after it Chevron Series of cases in Loper Bright And Corner post.

Citing one of these cases, Brown reiterated that the Administrative Procedure Act, which allows courts to overturn certain agency decisions, was intended as a “check on administrative officials who might have excelled by their zeal, but who were not intended to do so when their offices were created.”

I have heard from many physicians across the country who were thrilled that this ban was being considered, despite the lack of legal basis, and who are sad that it is being lifted. Physicians feel the strain of changing jobs and having to deal with a complex set of rules and work restrictions after they leave, and this is a common problem among patients in healthcare settings.

But hospitals still claim they need non-compete agreements to remain competitive. Many large systems pay recruiting costs and even undertake acquisitions to attract physicians, arguing that they are only protecting their investment. But that argument often rings hollow to a physician who is not willing to divulge trade secrets or present financial data to a rival group.

These employed physicians perform the work they were trained to do and are often not involved in the board or management. They use the skills and training they have acquired over decades of study to treat and operate on patients.

There is no doubt that non-competition clauses make sense in the private sector. They serve to protect trade secrets, confidential information and the legitimate business interests of an employer.

For example, if an independent primary care practice hires and trains a physician or experienced provider to build a solid patient base, the practice will add a non-compete clause to the contract to prevent the provider from leaving after a year and opening a practice nearby, taking all the patients and knowledge with them. Without any protection, the practice would essentially be funding its future competitor.

In these cases, narrowly worded non-compete clauses serve their purpose. But even then, they should refer to the practice in which the provider works – and not to each location of the practice, which may cover a large metropolitan area. A non-compete clause that is too broad does nothing other than strengthen the hospital monopolies.

As much as the doctors may be dissatisfied with the final result, Ryan The ruling makes legal sense. The FTC has exceeded its authority. However, many doctors believe that non-competes are oppressive and limit their freedom of movement and work. This makes it all the more important for them to fight at the local level to restrict and limit non-competes.

Ryan is not the only case on this issue, but it may be the last. Since the courts are divided on this issue, it will certainly soon reach the Supreme Court, which will add to the line of cases on agency decisions. Given the recent rulings and the tendency of the current Court, I expect that the Ryan The case is confirmed.

One thing is clear: non-compete agreements are a major topic of discussion right now. We need doctors to be able to practice freely and move around freely to treat our citizens. Let's not make it harder for them to do so. We need to mobilize at the local level to create sensible and narrow non-compete agreements for private practices, but at the same time loosen the stranglehold that hospitals have on doctors.

Physicians should advocate for fair and reasonable non-compete agreements at the state level, oppose unreasonable non-compete agreements by large employers, and advocate for reasonable agreements under strict conditions.

If we don't help doctors close the gaps in health care, everyone suffers.

The case is Ryan LLC v. FTC, ND Tex., No. 3:24-cv-00986, decided 8/20/24.

This article does not necessarily reflect the views of Bloomberg Industry Group, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Information about the author

Amanda Hill is the owner and founder of Hill Health Law Group and has nearly 25 years of experience in healthcare law.

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