On Friday, July 9, 2021, President Biden signed a sweeping executive order covering a broad range of activities which may impact competition in the marketplace. The President’s directives in the executive order range across several different industries and involve multiple federal agencies, including the Department of Health and Human Services (HHS), the Federal Trade Commission (FTC), and the Securities and Exchange Commission (SEC). President Biden’s instructions and comments on non-compete covenants may be of particular interest to businesses in the healthcare industry.
As healthcare providers are well aware (and as attorneys at Chilivis Grubman previously discussed here), non-compete agreements are a contentious and key negotiation point in many healthcare transactions, and especially in physician employment agreements. The removal of non-compete covenants from the healthcare industry would have serious implications.
In Section 5(g) of the executive order, President Biden speaks directly to the FTC:
To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.
Expect Roadblocks and Limitations
Despite the President’s executive order and campaign rhetoric on non-compete covenants, there’s no way to know how far the FTC can and will take this directive until the FTC releases a proposed rule. Additionally, the FTC can expect to face some significant legal challenges, including: (1) whether the FTC has authority under the Federal Trade Commission Act to establish criteria for determining permissible contractual restraints on employees, and (2) whether a federal agency can step into an area of law that has, to date, been governed by state law.
Considering the executive order, here are a few key points on non-competes to consider, for now:
- The executive order does not invalidate current non-compete covenants.
- The rulemaking process for federal agencies is a lengthy process and with the anticipated legal challenges, it may be a long time before we see a final, enforceable rule.
- A final rule from the FTC may ultimately be limited to specific subsets of “non-essential” employees, or to employment in certain industries.
- The executive order’s language appears to apply to non-compete covenants between employees and employers specifically and is silent on non-compete covenants in other scenarios, such as a covenant tied to the sale of a business.
The attorneys at Chilivis Grubman have extensive experience with drafting and negotiating physician non-compete covenants, both in the context of employment agreements and the sale of a business. If you need assistance with such a matter, please contact us today.