March 9, 2023

ACEP Responds to FTC’s Proposed Rule to Ban the Use of Non-Compete Contracts

Earlier this week, ACEP responded to the Federal Trade Commission’s (FTC’s) proposed ban on non-compete clauses in employment contracts (ACEP’s press release can be found here). This reg, if finalized, could impact many of you as emergency physicians—and it probably sounds very familiar to you as well, since I provided a summary of it in a previous Regs and Eggs blog post.

As I mentioned in that blog post, ACEP supports a ban on non-competes, and we even tweeted right after the reg was released that our organization “fundamentally opposes non-compete clauses—which limit the right of emergency physicians to freely practice medicine in their communities—and we're deeply pleased to see the FTC's new proposed rule to ban these predatory clauses.”

To help with our detailed response to the reg (as you well know, regs are complicated and necessitate detailed responses), we asked you, our emergency physician members, to fill out an anonymous questionnaire about your experiences with non-compete clauses. By highlighting experiences from you all in our response letter, our comments and proposed recommendations would hopefully be even more persuasive and have the greatest chance of ensuring that any final reg truly benefits you all, regardless of how or where you are employed.

We received over 75 responses to our questionnaire and were able to embed specific comments from our members directly in our response letter (so, thank you to everyone who responded!). Overall, the comments made the case that the unique nature of emergency medicine make non-compete agreements particularly ill-suited to the specialty. Unlike many other specialties, emergency physicians do not have a “book of business” of existing patients with whom they have established and ongoing relationships. If they leave to go to another group or hospital, no patients will follow them to their new practice, so their departure doesn’t lose their previous employer any business.

In the reg, the FTC clearly identifies non-compete clauses as “unfair” and states that they are exploitative and coercive at the time of the worker’s potential departure from the employer, because they force a worker to either stay in a job they want to leave or choose an alternative that likely impacts their livelihood. Respondents to our questionnaire strongly agreed with this characterization. Of all respondents to our questionnaire, 90 percent said that non-compete clauses make it harder for emergency physicians to switch employers. Several commented that they both “decrease competition and suppress wages” as emergency physicians are bound by their restrictive contracts and unable to pursue a job with a potentially higher wage, lest they relocate. In addition, 52 percent of all respondents said that non-compete clauses made it more difficult for emergency physicians to find a job; 44 percent of respondents that identified themselves as solely employers/leaders of a group agreed; 44 percent of respondents that identified themselves solely as employees/individual contractors agreed; and 78 percent of respondents who identified themselves as both an employer and an employee agreed. Thus, many emergency physicians are stuck in positions where they may be unhappy but are unable to switch employers, thereby occupying a job that may be better suited for another employee that is barred from applying.

Non-compete clauses also bar emergency physicians from “moonlighting” at other facilities, an opportunity which can enhance job flexibility, allow physicians to expand their skills, and help them earn additional income. Thus, if they are restricted by a non-compete clause that suppresses their wages, they are unable to supplement this financial strain.

With respect to non-competes being “unfair,” the FTC also sought comment on whether its “unfairness” analysis should apply to highly paid or highly skilled workers who are not senior executives and asked how this category of workers should be defined, and if they should be subject to different regulatory standards. We state in our response that it is clear from our questionnaire results that emergency physicians, as highly skilled workers, are negatively impacted by non-compete clauses, and therefore we strongly encourage the FTC to apply the SAME “unfairness” analysis to highly paid or highly skilled workers.

The FTC goes further than calling non-competes unfair and states that it believes that non-compete clauses are exploitative and coercive at both the time of contracting and at the time of the worker’s potential departure from the employer because they force a worker to either stay in a job they want to leave or choose an alternative that likely impacts their livelihood, thereby limiting their autonomy. The majority of respondents to our questionnaire said that non-competes had a general negative impact on their employment, with 58.6 percent saying they would seek a different job locally had they not been subject to the clause. Many described feeling “trapped” by the clause. Geographic restrictions in non-compete clauses coerce employees into remaining in exploitative contracts that may, as one respondent noted, “censor physicians from standing up for patient care and/or leaving a facility they feel is not meeting the needs of their patients properly, without uprooting their entire family.” Over a quarter of respondents ultimately relocated and/or traveled over an hour for other employment due to the limitations of their non-compete clause, which can have a significant financial impact, cause familial or marriage problems, or cause their entire families to readjust to a new location.

As you can see, most of the responses we received to the questionnaire were from emergency physician employees who strongly supported the ban. We also, however, recognize that some of you are employers yourselves and manage small- and medium-sized groups. We asked these employers what they thought about the proposed ban. Of the employers who use a non-compete clause, 79 percent said that a categorical ban would either have a positive or minimal impact on their group, whereas 10 percent said that it would have a negative impact on their group. Of those who said that a categorical ban would have a negative impact on their group, they cited fears of insecurity of contract with their contracting hospital and potential for a mass exodus of employees to another hospital. However, those employers who were in favor of the categorical ban welcomed the possibility of increased competition and the larger pool of candidates that would occur due to the elimination of geographic limitations.

Some employers who are not mandated to use non-compete clauses say they choose to use them because they offer a sense of stability and workforce security, especially in rural and underserved areas. As consolidation throughout health care continues to grow, they note that a non-compete can offer a means of protection against hostile takeover of an independent emergency medicine practice wherein a contracting hospital terminates the contract but retains some members of the group.

Although FTC proposed a total ban on non-compete clauses, it sought comment on some alternatives that it could finalize in place of a complete ban. First, instead of a categorical ban, the FTC could adopt a “rebuttable presumption” of unlawfulness. Under this approach, it would be presumptively unlawful for an employer to use a non-compete clause, but the use of a non-compete clause would be permitted if the employer could meet a certain evidentiary burden, based on a standard that would be articulated in the rule. Another potential alternative to a categorical ban is a “disclosure requirement” in which an employer must disclose to a worker, prior to making the employment offer, that the worker will be subject to a non-compete clause.

Around 88 percent of employers who responded to our questionnaire were in stark opposition to the first alternative, the rebuttable presumption, with most commenting that they would prefer a categorical ban to this alternative. Respondents expressed that this approach would “still cause fear of legal liability to a physician” and “protects the company rather than the worker equally.” The 12 percent who did not express opposition instead commented on the complexity that it would add to the hiring process and the burden that the presumption would place on the employer asking for the restriction.

Regarding the second alternative, 58 percent of ACEP respondents said that disclosure requirements would not alter the current usage of non-compete clauses in any significant way. This is due to the prevalence of non-compete clauses in emergency medicine. Thus, though a prospective employee would be made privy to the non-compete clause prior to the contract stage, the employee may not have another choice in employers due to existing market conditions and therefore sign a contract with a non-compete clause anyway. Those who opposed the disclosure requirements preferred the categorical ban to this alternative. However, 15 percent of respondents acknowledged that the disclosure requirement may mitigate the negative impacts of the current non-compete clauses on market conditions or cause them to be used less frequently.

All in all, the responses to the questionnaire that are included in our response to the reg clearly demonstrate the real effects of non-compete clauses on emergency physicians and emergency medicine. With the exception of serving as a protective measure against insecurity with a contracting hospital, it appears that the current prevalence of non-compete clauses in emergency medicine detrimentally affects physicians’ interests and well-being, which may in turn impact their ability to serve their patients. Therefore, ACEP urges the FTC in our response to finalize the regulation as proposed to help address the current anti-competitive conditions in the emergency medicine labor market. However, we believe that the FTC should monitor the effect a categorical ban on non-competes has on the ability to recruit and maintain a stable workforce in rural and underserved areas.

Lastly, it is important to note that the reg states that the non-compete ban would not apply to non-profit hospitals. Given that a large number of hospitals are non-profit entities, if the reg is finalized and the ban only applies to for-profit hospitals, we have concerns about the unlevel playing field this would create and the potential for unintended consequences. Therefore, we also ask the FTC to examine the potential impacts should non-profit health systems be exempt from a ban.

So that’s our letter! And now comes the interesting part. The FTC will review all the comments it receives and will decide what if any policy to finalize. Any final policy could also be challenged in Court (and that is actually the expectation at this point). Thus, it definitely remains to be seen if non-compete clauses will eventually be banned categorically or if a much more limited ban or policy (if any) is actually implemented.

Until next week, this is Jeffrey saying, enjoy reading your regs with your eggs!

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