Noncompete agreements – On life support but not dead yet

While the most recent effort to change Florida’s law regarding noncompete agreements was not successful, the issue did not end with the close of the 2024 legislative session.  On Tuesday, April 23rd, 2024, the Federal Trade Commission (FTC) finalized a rule (click here for the full text of the rule) that will eliminate the vast majority of noncompete clauses in worker’s contracts.  This action by the federal government will apply nationwide and will have a significant effect on physicians and those entities that contract for physician services.

If the rule ever takes effect.

The rule is not slated to go into effect until 120 days after the date of publication in the Federal Register. The delay is designed to allow businesses to analyze their employment contracts to see if they contain provisions that meet the rule’s definition of a noncompete clause and if so, notify workers that after the effective date, such agreements will no longer be enforceable.  Even if the courts do not intervene, the rule will not be effective until August 21, 2024.

The FTC final rule has already drawn two legal challenges, however, and more are expected.  Less than 24 hours after the FTC announced the final rule, the U.S. Chamber of Commerce filed a lawsuit in the U.S. District Court for the Eastern District of Texas arguing that the FTC does not have legal authority to issue binding regulations that prohibit “unfair methods of competition” and that under the U.S. Supreme Court’s “major questions doctrine,” the final rule must be vacated because the FTC acted without clear Congressional authorization. This lawsuit was strategically filed in a conservative, business-friendly district in which any appeal will be heard by the U.S. Court of Appeals for the 5th Circuit – a court dominated by judges appointed by Republican presidents.

Ryan, a global tax services and software provider, actually filed the first suit against the rule in the U.S. District Court for the Northern District of Texas.  This lawsuit similarly alleges that the FTC lacks the authority to prohibit noncompete agreements and also argues that the FTC itself is unconstitutionally structured.

Legal experts expect that other interested parties will raise similar challenges and that the status of the final rule will remain in flux while the legal battles proceed. As of today (May 2nd), however, no stay of the FTC’s rule has been issued.  Unless, or until, an injunction is issued, companies should proceed as if the rule will go into effect on August 21st.  Physicians affected by a noncompete agreement should monitor the legal proceedings and wait until the effective date before taking any actions in reliance on the final rule.

The FMA will analyze all of the rulings from any of the lawsuits challenging the rule and will provide an update as important developments occur.  In the meantime, we will put out a summary of the key provisions of the new rule with a focus on how the rule will affect physicians and those companies that contract for physician services.  Any FMA members who have any questions regarding the FTC rule can contact the FMA Legal Department at jscott@flmedical.org.