A recent decision by the Federal Trade Commission has effectively banned non-compete clauses, changing how healthcare organizations can limit the activities of employees after they resign or are terminated, requiring a review of any non-compete agreements currently in place and policies that require them. The FTC voted to approve the final rule effective 120 days after the decision is published in the Federal Register.
Khaled Klele spoke with Relias Media and explained that the FTC determined that non-competes create an unfair method of competition, violating Section 5 of the FTC Act. The new rule means that existing non-competes are void as of the effective date, and that employers must notify current and past employees that the employer will not enforce existing non-competes. Khaled noted that the rule could be a significant issue for healthcare entities that have confidential or strategic information they wish to keep from competitors.
Khaled said. “I think to maintain the status quo — because this will be impactful to the industry, and not just to healthcare but to really all industries — the court will stay the rule. Maintaining the status quo is the purpose of filing an injunction, until there’s a final decision on the merits.” He suggests that healthcare providers should assess their current dependence on non-competes, in anticipation of the rule eventually being finalized even if there are legal stays for some time.
“I would look at the non-compete that they have in place to see how it is impacted by the FTC ruling and prepare for an eventual loss by the groups challenging the rule,” he said. “If the court does deny the stay, then the rule obviously will go into effect. And then organizations will have to issue the notice to employees that is required by the rule to tell them that they’re not enforceable.” Trade secrets can still be protected by non-disclosure agreements, so organizations also should review them to make sure that they are providing adequate protection for those areas, he said.