This Final Rule does not take effect until 120 days after it is published in the Federal Register. Litigation seeking to prevent the Final Rule from ever taking effect has already been commenced in the United States District Court for the Eastern District of Texas. We will update you if and when the Court enters an order delaying the Final Rule’s effective date.

Almost all health care providers are bound to some type of noncompetition provision. The following is a brief outline of how the Final Rule would affect physicians, dentists, and other health care professionals if and when it takes effect:

1. Most noncompetition provisions in employment agreements will no longer be enforceable.

• An exception exists for existing noncompetition agreements with a “Senior Executive” (noncompetition agreements with Senior Executives entered into after the effective date of the Final Rule would not be enforceable).

Senior Executives are estimated to represent less than .75% of the work force, and include only those that are:

a. The President, CEO or other officers of a PC or PLLC having authority to make decisions that control significant aspects of the business; and

b. Compensated more than $151,164/year.

Generally, noncompetition provisions entered into in connection with the sale of a business remain enforceable.

2. Employers would be required to provide written notice to employees that their noncompetition provisions are no longer enforceable.

3. The Final Rule will not affect causes of action related to noncompetition provisions accruing prior to its effective date.

4. Michigan law providing that noncompetition provisions are enforceable are superseded by the Final Rule.

5. Many are reporting that the FTC does not have jurisdiction over nonprofits and therefore the Final Rule will not be binding on nonprofit hospitals and hospital systems. This may not be accurate. Not all nonprofit entities fall outside the FTC’s jurisdiction. Only nonprofits that are actually engaged in charitable activities and are deriving a profit are outside the FTC’s jurisdiction. The Final Rule does not exempt nonprofit healthcare entities. Instead, nonprofit hospitals and hospital systems seeking enforcement of a noncompetition provision and claiming the Final Rule does not apply to them will be scrutinized using the FTC’s two part test.

Healthcare practices should prepare now to protect themselves in an environment where employees are not subject to noncompetition provisions. This should include reviewing all employment agreements, employee handbooks and other employment policies to insure the best possible trade secret, non-disclosure, confidentiality and non-solicitation provisions.