American Hospital Association and Federation of American Hospitals File Amicus Brief in the Ryan Case

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In an earlier report, we examined the recent decision of the U.S. District Court for the Eastern District of Pennsylvania in ATS Tree Services, Inc. v. FTC, in which the Court rejected the plaintiff’s request for the issuance of a stay of the September 4, 2024, effective date of the Federal Trade Commission’s (FTC) rule banning virtually all noncompete agreements (the Rule) along with a preliminary injunction and how that decision is diametrically opposed to the recent decision of the District Court for the Northern District of Texas (Ryan, LLC v. FTC) in which that Court granted the plaintiffs’ request for a preliminary injunction.

On July 26, 2024, the American Hospital Association and the Federation of American Hospitals (the Amici) filed an amicus brief in the Ryan case in which they stated their support for the Court’s decision and provided the Court with “additional, clear examples showing that the Rule is as arbitrary and capricious as this Court already found it to be.”

In summary, the Amici contend that the FTC’s consideration of alternatives proposed by the Amici to tailor the Rule to the unique features of the health care system, and its explanation of its decision to reject those alternatives, was unlawfully insufficient.

The Amici note that the FTC does not have the statutory authority to apply its rule to nonprofit entities that are exempt under Section 501(c)(3) of the Internal Revenue Code, including nonprofit hospitals and health systems.[1]

The Amici explain that only tax-paying hospitals would be subject to the requirements of the Rule and this could cause a significant distortion in the “competitive playing field for hospital labor and reduce the available supply of highly-trained, highly-skilled labor for for-profit hospitals in particular markets, driving up the price for such labor or at least creating serious instability in those markets.”

The Amici also explain that, in light of these potential consequences, they filed public comments with the FTC during the comment period following the issuance of the proposed Rule. In those comments they urged the FTC to more narrowly tailor its Final Rule, explained that the potential effects of this disparate treatment had not been sufficiently studied and urged the FTC to examine it further before imposing a strict rule on tax-paying hospitals and health systems. According to the Amici, the FTC ignored the warning and rejected the Amici’s advice.

Further, the Amici assert that in opting for a “one-size-fits-all” approach, the FTC identified “no studies or data addressing the potential impact of the uneven application of a noncompete rule.”

Instead, according to the Amici, the FTC “embarked upon an arbitrary and capricious experiment, permitting a majority of hospitals to continue to negotiate noncompete arrangements with their employees while competing with taxpaying hospitals [approximately 24% of all] that are subject to the FTC’s jurisdiction and the Noncompete Rule.”

This treatment of the hospital labor market, according to the Amici, “underscores why the Final Rule was not supported by relevant evidence, lacked a reasonable explanation and did not consider proffered alternatives.”

The Amici conclude that the Rule is invalid as in excess of the FTC’s statutory authority, as arbitrary and capricious and that the Administrative Procedure Act and controlling Fifth Circuit precedent mandate that the Court vacate the Rule in its entirety.


[1] As explained in prior posts, the Federal Trade Commission Act does not reach any entity that is not “organized to carry on business for its own profit or that of its members.” Accordingly, these entities are not subject to the Rule.

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