Stuart Gerson, Erik Weibust, Peter Steinmeyer Quoted in “Will the FTC Non-Compete Ban Happen? Physicians Await Uncertain Future”

Stuart M. Gerson, Erik W. Weibust, and Peter A. Steinmeyer, Members of the Firm in the Litigation, Health Care & Life Sciences, and Employment, Labor & Workforce Management practices, were quoted in Pulmonology Advisor, in “Will the FTC Non-Compete Ban Happen? Physicians Await Uncertain Future,” by Jayne Jacova Feld.

Following is an excerpt:

When the Federal Trade Commission (FTC) announced its landmark rule abolishing non-compete clauses for nearly all workers in the United States as of September 4, 2024, a wave of hope swept through the physician community. Given that between a third to a half of physicians are bound by such agreements, the decision—issued April 23—promised a transformative shift: physicians would finally be free from restrictive legal constraints and would have greater freedom to pursue new opportunities.

Yet the excitement was short-lived. The rule’s future is now clouded with uncertainty, facing current and looming legal challenges from various industry groups, as well as political scrutiny. As the health care industry holds its breath, many are left asking: Will this much-anticipated change actually take effect, and what will its true impact be on physicians’ careers and the broader health care landscape?

The American Medical Association estimates that 37% to 45% of doctors are bound by non-compete agreements. A non-compete agreement is a clause in an employment contract that restricts a former employee from working for a competitor within a specific geographic area, market, or time period. These agreements were ostensibly designed to help employers protect confidential information, such as trade secrets, specialized training, and intellectual property. The FTC decision to ban non-compete agreements—a scenario long sought-after by physicians—has the potential to change the medical professional landscape significantly.

What Rule Challenges Mean for Physicians

The FTC’s final rule to ban most non-compete agreements has been subject to strong legal challenges, and more may be coming.

[E]ven if the FTC rule banning most non-compete agreements goes into effect on September 4 as planned, its impact on physicians employed at nonprofit hospitals remains ambiguous.

“Since April, several parties have challenged the Final Rule, seeking judicial relief from the nationwide ban,” according to an August 16 report published on JD Supra, a legal news website. Although the FTC rule was upheld by a Pennsylvania federal district court July 23, the report noted, 2 other challenges are pending that could potentially result in a nationwide injunction—one in Texas and the other in Florida.

The Texas case, Ryan LLC vs FTC, which will likely be decided by the end of August, could potentially stop the new FTC rule from taking effect nationwide on Sept. 4. In the Ryan case, the Texas federal district court held on July 3 that the FTC had exceeded its statutory authority in adopting the rule. “The court stayed enforcement of the rule as to the named plaintiffs, but has not yet imposed a broader, nationwide injunction,” JD Supra reported, adding that the court’s final decision in this case, to be issued by August 30, “may (or may not) stay the effect of the Final Rule nationwide.” Notably, in granting the preliminary injunction, Judge Ada Brown stated that the FTC lacked “substantive rule-making authority” and that the plaintiffs were “likely to succeed” on the merits of their case. …

Employers are also in a wait and see mode, wondering whether in just a few weeks they will be issuing notices to employees that their non-compete clauses will no longer be enforced due to the new FTC rule. “[E]mployers are grappling with the choice of preparing the required notice or waiting to see if the legal challenges stay the effective date,” JD Supra reported.

All this uncertainty over the FTC rule is no surprise to attorneys Stuart Gerson and Erik Weibust of Epstein Becker & Green, a firm specializing in health law, who predicted that the FTC final rule banning non-competes was “dead on arrival” and that it would eventually reach the US Supreme Court. In April they stated that “the rule is unlikely to go into effect anytime soon, if ever, provided the ideological makeup of the Supreme Court remains the same.”

The Supreme Court’s decision on June 28 in Loper Bright Enterprises v Raimondo⁷has only strengthened this poor prognosis for the FTC final rule. The Loper decision overturned the “Chevron deference,” which allowed agencies like the FTC broad power to interpret ambiguous laws, explained Gerson, in an exclusive interview. “Essentially, if a statute was unclear, courts would typically defer to the agency’s interpretation,” said Gerson. “Without this deference, courts will now independently assess the FTC’s authority, resulting in more legal challenges and closer examination of the non-compete ban.”

What if the Rule Does Take Effect?

If the new FTC rule banning non-compete agreements does take effect, it will have far-reaching implications for physicians as well as employees in many industries. About one-fifth of the US workforce, or approximately 30 million American workers, could be affected by the FTC ban on non-compete agreements, which is designed to drive innovation, boost worker earnings by an average of $524 per year, and lead to the creation of more than 8500 new businesses per year.

In addition to prohibiting future non-compete agreements, the FTC final rule also scraps existing non-compete agreements, with one major exception: non-competes will remain in force for senior executives earning more than $151,164 annually who hold policy-making positions. Notably, the exact scope of which medical personnel will be affected by this exception remains uncertain.

What’s more, even if the FTC rule banning most non-compete agreements goes into effect on September 4 as planned, its impact on physicians employed at nonprofit hospitals remains ambiguous. The FTC acknowledges that nonprofit health care organizations operating genuinely for public benefit might be exempt from the ban, but those functioning similarly to for-profit entities could still be regulated.

“The FTC has made it clear that it intends to scrutinize entities claiming nonprofit status by evaluating whether they are genuinely engaged in charitable activities or if they operate in a manner that closely resembles for-profit entities,” said Epstein Becker Green attorneys Peter A. Steinmeyer and Erik W. Weibust in an article in Thomson Reuters Practical Law. “This means that while many nonprofit health care organizations might be exempt from the non-compete ban, those that function more like profit-driven businesses could still fall under the FTC’s regulatory scope.” This distinction is critical, given that approximately 58% of US hospitals operate as nonprofit institutions.