Federal court ruling against noncompetes is disappointing, AAFP says

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A federal court ruling that supports business use of noncompete agreements is a disappointing move that hurts doctors, said the leader of the American Academy of Family Physicians (AAFP).

On Aug. 20, a federal judge decided in favor of a lawsuit filed to block the Federal Trade Commission (FTC) from barring noncompete agreements and clauses used in contracts with physicians, other clinicians, and workers in a number of other business sectors.

The rule was set to take effect on Sept. 4, but U.S. District Judge Ada Brown said the FTC’s rule is “set aside and shall not be enforced or otherwise take effect” on that day or afterward. Brown is a judge in the U.S. District Court for the Northern District of Texas, Dallas Division.

Family physicians react

Some physicians and leaders of hospitals and health systems have argued in favor of using noncompete agreements to protect competitive interests of doctors in business. But there is not a consensus on the issue in medicine and health care, and many physicians have spoken against limits on the times when and places where doctors may practice if they leave an employer.

“The AAFP is disappointed a federal court injunction will block the FTC’s noncompete rule from going into effect,” said a statement by Academy President Steven P. Furr, MD, FAAFP.

“Noncompetes harm family physicians and their patients by jeopardizing long-term patient-physician relationships and creating an uneven playing field for physicians,” Furr said. “The AAFP will continue to support the FTC’s mission to eliminate noncompetes in health care that prioritize the interests of organizations over those of patients and their physicians.”

Hospitals support noncompetes

The American Hospital Association (AHA) filed a comment letter with the FTC and a supporting brief in court to voice support for maintaining noncompete clauses. After this week’s court ruling, Chad Golder, AHA’s general counsel and secretary, issued a statement reaffirming that stance.

“The AHA welcomes Judge Brown’s decision setting aside the FTC’s non-compete rule nationwide,” Golder said. “As the AHA explained in both its comment letter and amicus brief, the rule was a breathtaking assertion of regulatory power by three unelected commissioners, made worse by the fact that the commissioners did not attempt to understand the disruptive impact it would have on hospitals, health systems, and the patients they serve.

“We are pleased that Judge Brown vindicated what the AHA predicted when this unlawful regulation was first released – the ‘only saving grace is that this rule will likely be short-lived, with courts almost certain to stop it before it can do damage to hospitals’ ability to care for their patients and communities,’” he said in the statement.

Court ruling

In the ruling, Brown cited legal precedents and the federal Administrative Procedure Act, along with arguments by supporters and opponents. In short, “the court concludes the Commission has exceeded its statutory authority in promulgating” the noncompete rule, Brown’s decision said.

That is good news for business, said G. Brint Ryan, CEO of Ryan, a Texas-base tax services and software company that filed the lawsuit to block the FTC ban. In a published statement, Ryan called the legal fight an effort “in protecting the very foundation of innovation that drives our economy from the overreach of the FTC in its misguided mission to invalidate millions of employment contracts.”

“Noncompetes serve as a cornerstone of mutual trust between employer and employee,” Ryan said. “As a champion for our clients and business owners nationwide, Ryan stands proud in the role we’ve played to protect businesses’ intellectual property and ongoing investment in employee training and skill development.”

‘Government micromanagement’

Ryan’s lawsuit was joined by the U.S. Chamber of Commerce and other business organizations.

Chamber President and CEO Suzanne P. Clark issued a statement calling the decision “a significant win in the Chamber’s fight against government micromanagement of business decisions."

"A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage,” Clark said. “We remain committed to holding the FTC – and all agencies – accountable to the rule of law, ensuring American workers and businesses can thrive."

FTC response

As for the FTC, its homepage at ftc.gov on Aug. 21 included the heading, “Noncompete Rule: What You Should Know,” with sections about the official text of the rule, state-by-state fact sheets, a section to report violations, and more.

FTC spokeswoman Victoria Graham said the FTC leaders are “seriously considering a potential appeal,” according to CNN. The court decision also “does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions,” she added.

The FTC has repeatedly emphasized economic benefits that could grow from a ban on noncompetes, which cover an estimated 18% of the total U.S. workforce. Those included reduced health care costs, including $74 billion to $194 billion in reduced spending on physician services over the next 10 years; an additional 8,500 new businesses created each year; and thousands of new patents each year.