FTC Noncompete Ban Presents Several Trade-Offs For Behavioral Health

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Behavioral health providers and investors must prepare to lose noncompete agreements as a tool in their arsenal following the Federal Trade Commission’s expected ban on the practice.  

On April 23, the FTC’s five commissioners voted 3-2 to approve a final rule that forbids businesses from entering new noncompete agreements. It also makes existing noncompete agreements unenforceable, except in the case of senior executives. The rule is presently slated to go into effect in late August 2024. It proposed the rule in January 2023.


Legal challenges to the FTC’s final rule already in place. Those challenges may take years to resolve. If made effective, the final rule means behavioral health organizations must deal with the prospect of high-demand or hard-to-find staffers being more free to enter and leave roles — and even start competing organizations. However, the noncompete ban also faces the prospect of potentially facing a Supreme Court that, at least as presently constituted, appears poised to strike the ban down, Emma Schuering, an employment attorney and shareholder at the law firm Polsinelli, told Behavioral Health Business.

The day the final rule was approved, the U.S. Chamber of Commerce — one of the largest, best-funded and most-active advocacy groups in the U.S. — swore to fight over the rule in court, calling the FTC’s move “unlawful,” “unnecessary,” and “a blatant power grab.” It filed its federal suit in Texas on April 24, the next day.

The FTC says that noncompetes are “an unfair method of competition” and violate Section 5 of the FTC Act.


“The Commission finds that employers almost always unilaterally impose noncompetes, exploiting their superior bargaining power to impose — without any meaningful negotiation or compensation — significant restrictions on a worker’s ability to leave for a better job or to engage in competitive activity,” the rule states.

The FTC expects the ban will lead to higher earnings for workers, increased business creation and more inventions via patent filings. It estimates that about 30 million Americans work in roles with noncompetes.

What does the rule do?

The rule bans noncompetes for nearly all U.S. workers. The rule is better defined by the exemptions it would allow if made effective.

Existing noncompetes for senior executives remain in place, but new ones would be forbidden.

A senior executive is defined as a worker who made at least $151,164 in total or annualized in the previous year and holds a “policy-making position.” The rule defines those positions as president, CEO or equivalent roles if they have “final authority,” not limited to merely advising.

“I think that is surprising,” Katie Funk, a shareholder and antitrust attorney with the firm Baker Donaldson, told BHB, referring to the lack of exemption for senior executives. “Senior executives tend to have knowledge and expertise that’s not monetized. If you’re a senior executive, you’re likely to be exposed to strategic planning, the so-called secret sauce of the organization, and potentially a lot of investment by that organization.”

The ban on noncompetes would not apply when someone sells a business or their stake in a business. Originally, the proposed rule only applied the exemption to those with a 25% stake or higher. The final rule expands the exemption by deleting the 25% threshold and not establishing a new one.

“There was a real concern that no buyer in good faith is going to buy a business where the only assets of that business are the knowledge workers who work for it,” Benjamin Dryden, vice chair of Foley & Lardner’s antitrust and competition practice group, told BHB. “Unless that buyer could have some assurance that those employees are going to be bound by a noncompete.”

The rule also includes an exemption for organizations with a “good-faith basis to believe that the final rule is inapplicable.” It would require organizations to tell employees under a noncompete agreement that it is not enforceable.

How noncompete ban applies to behavioral health

If the rule became effective, behavioral health providers would experience a mixed bag of benefits and challenges. From a workforce perspective, employees could more easily leave the organization. On the other side of that coin, employers could more easily hire employees.

The top challenge in all sectors of the behavioral health industry is a shortage of and inequitable distribution of clinicians. Often, the shortage puts the onus on provider organizations to make up for the gap in talent generation caused by the current education system. This, in turn, motivates behavioral health organizations to ensure that those they train stick around to make the investment worth it from a financial perspective.

“[The ban] may have an impact on some behavioral health providers of improving their ability to to move to another employer,” Paul Gomez, co-chair of the behavioral health practice at Polsinelli, told BHB. “On the other side of that, it limits what you can do to ensure that, as a provider, your [clinicians] remain available to treat patients that you are currently treating and to justify the investments that you’re making in them in terms of professional development and support and have everything they need to be able to provide quality services to the patients.”

The autism therapy industry provides a clear example of this dynamic. The final rule even mentions the industry.

The overall shortage of board-certified behavior analysts (BCBAs) — and a resultant shortage of experienced BCBAs especially — have driven organizations to spend significant amounts of time and money on building up and supporting clinicians.

The final rule includes citations of research from 2020 that found 33% of BCBA contracts contain noncompetes. Follow-up research also found that, in 2023, 38% of BCBAs were in a role and 33% had previously worked in a role where a noncompete was relevant. That was higher than the national average, which was pegged at about 18% of workers. About 57% of BCBAs said they had to work in a different region, and 44% said they had to take a pay cut because of their noncompetes.

Noncompetes are more common among senior executives, Gomez said, but added that he’s seen noncompetes used as a way to push back against the workforce shortage for certain positions. Still, it’s less common to see noncompetes enforced in court. Rather, they tend to lead to “buyouts” or other means of negotiating a separation agreement, Schuering added.

The “good-faith basis” exemption also opens a wrinkle for some nonprofit organizations. That’s because the FTC’s jurisdiction does not apply to all nonprofit organizations. Some nonprofit behavioral health providers might not be subject to the noncompete ban.

“If you’re in that situation where you genuinely believe that you are exempted from the rule, but some court after the fact says, ‘No, you’re actually subject to the rule,’ there’s some grace there because he had a good faith belief they are complying with the law,” Dryden said.

This would create an advantage of sorts for nonprofit behavioral health providers. Dryden said they would have the benefit of hiring employees previously engaged at for-profit entities as well as the benefit of still using noncompetes.

The sale-related exemption allows investors some degree of assurance that they will be able to benefit from, or at least not have to compete with, executives and clinicians after they acquire a company.

“The public generally would probably feel very differently about enforcing a noncompete on someone moving from one fast-food restaurant to another versus enforcing a noncompete when one business buys the assets of another business,” Gomez said. “Do they have a legitimate interest in making sure that the person or the entity that just sold them that business can’t set up shop and compete immediately a mile down the road?

“Even the FTC seems to agree with that rationale.”

Other considerations

The FTC said that the vast majority of the comments fielded during the rule’s comment period supported the ban. Many came from workers in the health care industry.

“Specifically, healthcare workers commented that because non-competes prohibited them from switching jobs or starting their own businesses, they had to stay at jobs with unsafe and hostile working conditions, to take jobs with long commutes, to relocate their families, to give up training opportunities, and to abandon patients who wanted to continue seeing them,” the final rule states.

The rule included comments from behavioral health clinicians who wanted to launch their own business but couldn’t, limiting their career prospects.

The FTC notes that there are other ways to protect a business’ trade secrets and similar interests. It points to nondisclosure agreements, which are commonly used alongside noncompete agreements. Some research finds that 70% of businesses use nondisclosure agreements.

However, nondisclosure agreements don’t have the same preventative impact that noncompetes do, Funk said.

“Those (nondisclosure) types of actions are exercised after a breach, after there’s been a violation, as opposed to a noncompete potentially protecting them from the action ever happening,” Funk said.

Even if the FTC’s ban on noncompetes does not survive judicial review, Gomez says that states may take up the effort to eliminate noncompetes. California, Minnesota, North Dakota and Oklahoma have banned noncompetes altogether, while more than a dozen states have limited their use in some way.

“Some states look to the FTC and this rule for some inspiration or guidance about what civil restrictions they may choose to put in place,” Gomez said. “I think you’ll find greater risk for that with certain states that have a political mindset that’s more in line with the FTC than others.”

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