FTC Drops Legal Appeals, Abandons Noncompete Rule

In August 2024, the United States District Court for the Northern District of Texas permanently barred the Federal Trade Commission's ban on employee noncompetes. The decision, applied nationally, prohibited the FTC from enforcing its April 2024 Noncompete Rule. Following the Texas decision, as well as a companion decision in Florida, the FTC considered appealing the decisions, but delayed action during the election and change in administration.

On Sept. 5, the FTC dropped its appeal efforts and repealed the Noncompete Rule. (For background on the FTC's Noncompete Rule, see APTA's article "Employer Noncompete Restrictions Eliminated in New Rule.") However, the FTC's announcement was sandwiched by a variety of related actions indicating the new administration's interest in pursuing the now-defunct rule's goal of freeing employees from anticompetitive noncompete agreements.

The Effect on the Health Care Sector

First, the FTC indicated that it would pursue case-by-case enforcement of anticompetitive noncompete agreements. The FTC punctuated its intent by issuing warning letters to several large health care employers, urging those employers to conduct a comprehensive review of their employment agreements.

Further, the FTC released a request for information regarding employer noncompete agreements, targeted toward identifying which specific employers continue to use restrictive noncompete agreements, whether employers are facing hiring difficulties due to rival noncompete agreements, and the specific nature of how noncompete agreements are used in the health care sector. The primary inquiry that FTC has related to health care is whether competition for specific services has been affected in a specific geographic area. For individuals seeking to provide a response to this RFI, comments are due Nov. 3 by 11:59 p.m. ET. Confidential submissions can be made on regulations.gov.

Also on Sept. 5, FTC Commissioner Mark Meador expanded on the commission's approach to noncompete clauses and the framework by which the FTC judges them, likening noncompete agreements to being subject to a rebuttable presumption of illegality. In other words, it is the employer's burden to demonstrate that the noncompete is necessary to achieve legitimate business interests and is narrowly tailored to that purpose. When considering the legality of a noncompete, Meador said, the FTC would look at both the legal and economic analysis across a variety of factors such as scope and duration of the noncompete or evidence of adverse economic effects, among others.

What Do PTs, PTAs, and Their Employers Need to Know?

It appears that the FTC does have interest in mitigating the broad use of anticompetitive employment clauses, but the means to achieve those goals are less robust and only as valuable as the results and level of enforcement. Most notably, individual actors who are subject to noncompete agreements must rely on the FTC to pursue enforcement against their employers or otherwise pursue legal action challenging the validity of their employment agreements. This is in stark comparison to the FTC noncompete ban, which would have required employers to affirmatively and unilaterally relieve employees of their obligations under a noncompete clause. Overall, the FTC's new approach places considerably more onus on employees to identify and challenge their noncompete agreements.

Finally, APTA previously published information on the application of the noncompete ban to nonprofit hospitals. Since the ban did not technically apply to nonprofits, there is unlikely to be any substantial change. It is still within the FTC's authority to determine whether the organization is, in fact, a nonprofit, and now would separately require the FTC to take enforcement action.