Noncompete Rules in Physician Contracts
Although common in employment contracts, restrictive noncompete agreements limit patient access to care, hinder physicians’ career choices, and contribute to physician burnout.
A final rule announced by the Federal Trade Commission on April 23, 2024, bans noncompetes in most scenarios. This ruling represents a major advocacy win on behalf of family physicians. Get the latest information on this rule and discover how the AAFP is fighting to keep opportunities in family medicine limitless.
Jump to a section: Latest updates | Frequently asked questions on the FTC ruling | Contracting resources
From the FTC
- The detailed final rule
- An infographic about the benefits of banning noncompetes
From the AAFP
- AAFP CEO and EVP Shawn Martin joins the Inside Family Medicine podcast to discuss the historic win to ban noncompetes.
- A Quick Tips blog entry on what the FTC's ban on noncompete clauses means for physicians.
- Written testimony to the House Energy and Commerce Committee on the primary care workforce.
- A letter to the FTC on the proposed rule for noncompetes.
The FTC final rule on noncompetes:
- Prohibits employers from entering into new noncompete clauses starting September 4, 2024.
- Effective September 4, all pre-existing noncompetes are no longer enforceable, with an exception for “senior executives.”
- Senior executives are defined as an individual who earns more than $151,164 per year in a “policy-making” position, which the rule specifies as those with the authority to make policy decisions for an entire company, such as a president or other C-suite role.
- Implementing new noncompetes for senior executives on or after the effective date is prohibited.
- Allows an exception for the “bona fide sale of a business entity”— meaning that noncompetes would still be legal when an individual sells a business or a share of a business. This exception does not apply to workers employed by the business that is sold.
- Applies to certain (not all) nonprofit organizations – the FTC’s jurisdiction excludes certain entities including banks, airlines and certain nonprofits.
No, they are simply considered no longer enforceable as of the effective date. Employers are only required to notify works that the agreement is no longer enforceable. Sample notices that meet FTC criteria are available here.
The FTC has limited authority, which is commonly thought to exclude nonprofits. However, the final rule notes that the FTC does have jurisdiction over some nonprofits and that tax-exempt organizations are not categorically excluded. The FTC cited examples of tax-exempt health care organizations that have been subject to FTC jurisdiction in the past, including nonprofit physician-hospital organizations and independent physician associations. The AAFP continues to review and monitor this topic.
The rule’s applicability depends on your employer or employer of record. For example, the rule applies to a physician working at a hospital clinic employed by a for-profit professional staffing firm that contracts with the hospital. The AAFP encourages family physicians to identify the specific entity that employs them, and the non- or for-profit status of that entity, to assess the rule’s potential impact.
During the rulemaking process, the FTC received extensive evidence (including comments from many AAFP members) that led it to determine that noncompete clauses are an unfair method of competition that violate the FTC Act. During the announcement, one commissioner stated that the comments submitted by physicians significantly influenced their decision to vote in support of the rule.
The FTC has limited authority, which is commonly thought to exclude nonprofits. However, the final rule notes that the FTC does have jurisdiction over some nonprofits and that tax-exempt organizations are not categorically excluded. The FTC cited examples of tax-exempt health care organizations that have been subject to FTC jurisdiction in the past, including nonprofit physician-hospital organizations and independent physician associations. The AAFP continues to review and monitor this topic.
During the rulemaking process, the FTC received extensive evidence (including comments from many AAFP members) that led it to determine that noncompete clauses are an unfair method of competition that violate the FTC Act. During the announcement, one commissioner stated that the comments submitted by physicians significantly influenced their decision to vote in support of the rule.
State laws restricting noncompetes are still in effect. If the state law is more permissive than the rule (for example, if state law allows noncompete clauses for physicians but bans them for all other workers), then the rule supersedes state law.
Lawsuits have already been filed seeking to invalidate the rule. Courts could grant an injunction, which would prevent the rule from going into effect before at least one of the cases is decided (a process that could take more than a year). The lawsuits challenge the FTC’s statutory authority to enact the rule, which means that, if successful, the entire rule would likely be invalidated.
