The Federal Trade Commission (FTC) issued a final ruling Tuesday, April 23, 2024, voting to ban noncompete clauses nationwide.
In early 2023, the FTC issued a proposed rule (ie, Final Rule) subject to a 90-day public comment period. More than 26,000 comments were received, with over 25,000 supporting the ban.
In the Final Rule, the FTC determined that employers entering into and enforcing certain noncompetes with employees is an unfair method of competition and, therefore, a violation of Section 5 of the FTC Act.
What is a noncompete in veterinary medicine?
A noncompete clause, also known as a noncompete, is a section of an agreement that restricts employees of a practice from leaving and taking a position at a practice considered to be a competitor. Restraints typically include a geographic area and a time period. Occasionally, the restraint might be client-specific or preclude a particular specialty in veterinary medicine.
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Noncompetes are common in veterinary medicine and may restrict practitioners’ and veterinary professionals’ career decisions.
“One of the issues…is that (noncompete) clauses can limit your mobility,” said Alyssa Watson, DVM, when discussing the possibility of the FTC ban in a 2023 Veterinary Breakroom podcast episode. “If you decide that your job is not a good fit and you want to leave, are you going to be able to find employment without uprooting your family?”
Why is the FTC banning noncompetes? What could it mean for the US workforce?
Noncompetes inhibit employees from changing jobs or starting new businesses, according to the FTC. With a ban on noncompetes, the FTC estimates new business formation could grow by 2.7% annually in the United States.1 This change could also boost earnings, lower healthcare costs, and drive innovation.
Nearly 1 in 5 Americans are currently subject to a noncompete, according to the FTC, and existing noncompetes for most employees would no longer be enforceable after the rule’s effective date.
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. /3 pic.twitter.com/fFV50IqVZA
— FTC (@FTC) April 23, 2024
If a company currently has noncompete clauses or agreements, the new rule requires they notify employees that noncompetes “will not be, and cannot legally be enforced against the worker.”1
New noncompetes will still be allowed for sellers in connection with the bona fide sale of a business. Certain existing noncompetes with senior executives will be exempt, although new noncompetes will not be allowed.1
California, Minnesota, Oklahoma, and North Dakota have previously banned noncompete agreements. Several other states have also passed laws limiting the use of noncompetes, according to Reuters, with New York considering a ban as well.2
When would the noncompete ban go into effect?
According to the FTC, the Final Rule would become effective 120 days after publication in the Federal Register. Market participants can report information about a suspected violation to the Bureau of Competition at noncompete@ftc.gov.
US Chamber sues FTC to block noncompete ban
The US Chamber of Commerce is suing the FTC in an effort to block this “unnecessary and unlawful” rule, according to president and CEO Suzanne Clark.
“The Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” said Clark in a statement. “This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy.”
How would a noncompete ban affect veterinary medicine?
More information is needed to fully understand how this potential ban on noncompete clauses may impact veterinary professionals. This page will be updated as new information becomes available. View the proposed final rule here.