Texas court stalls FTC noncompete ban
The court will now consider whether the FTC has the authority to enforce the ban, which was set to take effect September 4.
Photo: Pichsakul Promrungsee EyeEm/Getty Images
A Texas federal court last week issued a preliminary injunction against the Federal Trade Commission's noncompete ban, which if implemented would allow existing noncompete arrangements for senior executives to remain in effect, but would bar employers from entering into any new compete agreements.
The rule had been set to take effect September 4, but with the ruling from U.S. District Judge Ada Brown, the court will now consider whether the FTC has the authority to enforce the ban.
The plaintiffs, the U.S. Chamber of Commerce and tax preparation company Ryan LLC, said the FTC lacks the authority to enact rules that define unfair methods of competition.
In court documents, Brown called the noncompete rule "arbitrary and capricious."
WHAT'S THE IMPACT?
In a comment letter from April, the American Hospital Association cited nonprofit hospitals in particular when criticizing the FTC's rule, calling it "bad law, bad policy, and a clear sign of an agency run amok."
"The agency's stubborn insistence on issuing this sweeping rule – despite mountains of contrary legal precedent and evidence about its adverse impacts on the healthcare markets – is further proof that the agency has little regard for its place in our constitutional order," the AHA said. "Three unelected officials should not be permitted to regulate the entire U.S. economy and stretch their authority far beyond what Congress granted it – including by claiming the power to regulate certain tax-exempt, non-profit organizations."
The group added that the rule makes a mistake by seeking to create a "one-size-fits-all rule" for all employees across all industries, and said the FTC lacks Congressional authority to do so. Many hospital employees, the AMA said, have different considerations with respect to noncompete agreements than do employees in other industries.
The proposed rule, the AMA said, would transform the healthcare labor market, especially for physicians and senior hospital executives, by instantly invalidating "millions of dollars of existing contracts, while exacerbating problems of healthcare labor scarcity, especially for medically underserved areas like rural communities."
Nearly 80% of for-profit hospitals operate in the same markets as nonprofit hospitals, with many of the same demands for highly-skilled labor and senior executives, the AMA said.
"The only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals' ability to care for their patients and communities," the group said.
THE LARGER TREND
In the final rule, the FTC determined that noncompete agreements represent an unfair method of competition, and therefore violate the FTC Act.
The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year.
An estimated 30 million workers – nearly one in five Americans – are subject to a noncompete agreement.
The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year. It is also expected to lower healthcare costs by up to $194 billion over the next decade, according to the FTC.
In addition, the final rule is expected to help drive innovation and lead to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
