[co-authors: Tommy Rogers & Mariam Ba]
On April 23, 2024, the Federal Trade Commission (FTC) approved the proposed ban on non-compete agreements.
Under the new rule, existing non-competes for senior executives remain enforceable. However, employers are prohibited from entering into or enforcing new non-competes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and in policy-making positions.
The final rule will become effective on September 4, 2024.
However, the rule does not apply to non-profit employers, who are not subject to the FTC’s authority. Be aware, though, that the FTC may be looking to test whether non-profit health systems are actually operating as for-profit enterprises. Tax-exempt status alone may not be enough. FTC commissioner, Rebecca Kelly Slaughter said that she maintains the right to enforce the ban on non-profits that “behave” like for-profits. She stated, “If you claim non-profit tax status but are really organized for the profit of your members, you are within our jurisdiction and covered by the rule.” Non-Profit health systems should also be cognizant of their subsidiary entities non-profit/for-profit status and any relevant joint ventures. Subsidiaries, particularly physician enterprises, and joint venture organizations can often times be organized as for-profit entities within a health system’s corporate umbrella.
Importantly, the new rule will apply to healthcare workers who perform duties at a tax-exempt organization, but are employed by a for-profit entity like a physician group.
Nonetheless, the rule’s future is far from settled as it was immediately met with legal challenges from several groups, including the U.S. Chamber of Commerce, the largest pro-business lobbying group in the country. The U.S. Chamber of Commerce sued in Texas to delay the effective date of the rule’s implementation and vacate the rule in its entirety. In two of these lawsuits, the court agreed to an updated briefing schedule, resulting in decisions tentatively in July.
Non-profit organizations may hear conflicting information about whether the ban applies to them over the coming months. During that time period, it is best practice to examine business practices and wait for litigation on this ruling to move through the courts.
Even if the rule is eventually implemented, we believe given the significant and quantifiable charitable benefits that most non-profit healthcare systems provide, the FTC will be hard pressed to find a good test case that a non-profit health care facility is actually covered by the new rule.
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