Did you know around 37% to 45% of U.S. physicians are bound by non-compete agreements, according to estimates from the American Medical Association?

Non-compete agreements prohibit employees from leaving a job then taking another role in the same industry within a specific location for a period of time. Doctors, whether physician, dentist, or veterinarian, who sign these agreements can face stress when contemplating employment options or considering leaving their current job.

In recent years, the landscape around non-compete clauses has changed dramatically, with a significant public policy shift moving away from these types of restrictions.

In spring 2024, the Federal Trade Commission (FTC) announced a long-anticipated rule that bans the enforcement of non-compete clauses in most circumstances.

This rule defines non-competes as any restriction, limitation, or penalty that is intended to prevent someone from working anywhere within the United States post-termination as a condition of their employment or contract. This broad definition covers a wide range of clauses and leaves little room to maneuver around the ban.

Prior to this rule, non-compete restrictions have been governed at the state level, without a uniform policy across the country. Some states, like California and Massachusetts, have completely banned non-competes, while many others have limited their enforceability to specific circumstances. The FTC rule would supersede all state regulations, invalidating non-competes across the country. However, the rule has already been challenged in a federal court in Texas.

Though the rule was set to go into effect on September 4, 2024, a federal judge in Texas granted an injunction in early July 2024 to halt enforcement of the new rule. The rule is being challenged by several groups who argued that the FTC overstepped its rule-making authority in creating this rule. The injunction is temporary, and a final decision is anticipated by the end of August 2024.

Here is what you should know about the ban should it go into effect.

Does the rule apply to non-employed doctors, like independent contractors, PRN, and locums providers?

Yes, the rule applies to “workers” and defines a worker as “a natural person who works or who previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status under any other State or Federal laws, including, but not limited to, whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides a service to a person.”

Does the rule exclude physicians, dentists, and/or veterinarians?

No, the only workers exempt are “senior executives,” who are individuals paid a minimum of $151,164 per year and are in positions of “significant authority” within the organization. The FTC based this on the assumption that these individuals would have the means to review and negotiate their contracts and the ability to alter the policies of the organization.

While many doctors would meet the compensation threshold, most doctors employed by a hospital, health system, or academic center would not be considered senior executives. However, a doctor who is a partner in a private practice likely would be considered a senior executive as defined by this rule.

This exemption would apply only to existing non-compete agreements. Any non-compete signed after the rule goes into effect would not be valid.

I work for a nonprofit. Does this apply to me?

Maybe. Traditionally, the FTC does not have jurisdiction over nonprofit entities except for a few circumstances. However, the FTC did not specifically exempt nonprofits from the rule and indicated that there is some wiggle room, in the view of the commission.

According to the FTC, they will look at whether the entity is exclusively engaged in charitable work or if the entity or its members make a profit when determining if the rule will apply.

How will I know if this rule applies to me?

Under the rule, employers are required to let workers know if their non-compete falls within the jurisdiction of this rule. If a nonprofit employer does not believe they are governed by this rule, they will likely not provide notice. We anticipate continued challenges to this rule as it relates to nonprofit applicability.

Does the rule impact any other restrictions?

No, employers can still legally enforce non-solicitation agreements which keep doctors from going after patients, employees, or referral sources of the employer. Employers can also prohibit a doctor’s ability to moonlight while working for them. This is typically referred to as an exclusivity clause, and it is not prohibited by the rule.

My current contract does not say that I am prohibited from working within a certain radius for a certain period of time, but it does impose financial penalties if I do so. Will this still be allowed under the rule?

No. In recent years, several states have gone this route. Instead of restricting certain activities, they have chosen to penalize certain activities. While states have used these tactics to claim the disallowance of non-competes, the effect has been the same. The FTC rule would prohibit these types of penalties as well.

Navigating your career as a doctor

Non-competes are just one facet of the complex world of doctor jobs. Not sure about your new contract, ready to find a new job, or want to compare your salary? Panacea Legal’s experienced contract attorneys are ready to help.

A partner of Panacea Financial Holdings, Panacea Legal attorneys are equipped to help you review, understand, and negotiate your contract. Learn more and get started here.

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Our Resource Library has articles and webinars that address many frequently asked questions or financial topics that doctors should know. Click here to browse the entire library or check out one of these articles to get started:

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