On April 23, 2024, the Federal Trade Commission (FTC) passed the Final Rule that was intended to ban noncompete clauses in employment contracts with certain exceptions for health-care workers. It was set to go into effect on Sept. 4, 2024. However, on Aug. 20, 2024, the FTC halted the ban, which left employers and employees without answers for what might happen in the future.
As a practice owner for 30 years, I have been on both sides of the argument with noncompete clauses in employment contracts. Several providers have left my practice over that time, some who worked for me long enough that it would have significantly impacted my practice if they opened an office down the street. In fact, it happened to me once before.
The Impact as an Owner
An optometrist worked with me for 9 years, and we even became great friends during that time. He had a practice on the side at a local Walmart, working there on weekends and hiring others to work during the week. One day, he asked to carve that office out of the noncompete clause in his contract, an office that referred many patients to my practice. It took me a while to realize just how many patients he solicited and took with him to his practice. I felt betrayed and foolish for believing that nothing like that could ever happen to me. The work and financial investment I put in over those years to grow my practice was reduced significantly almost overnight.
As an owner, the value of noncompetes is priceless. We realize the risk and cost of investing in a new provider and that the purpose of hiring new people is to grow and expand our practice. Having a noncompete in place is supposed to secure that investment for a reasonable amount of time, allowing us to hire someone new and hopefully maintain those patients in the practice.
Today, the nonsolicitation portion of a noncompete almost makes it irrelevant. Nonsolicitation prevents providers from directly contacting patients with the purpose to recruit them to a new practice. However, it doesn’t prevent someone from using social media to announce a new location, which is just as effective as direct solicitation. In my area, a 10-mile, 2-year noncompete is considered reasonable, but patients will drive 10 miles to visit a provider who they like, giving social media announcements more power than is protected by a noncompete.
An Employee Perspective
Fast forward to 2021. I became an employee after I sold my practice to private equity. I now have both an employment and a sale of practice noncompete, and they aren’t the same. Employment noncompetes theoretically cannot prevent the employee from practicing without moving from their home to do so. However, some employment and sale noncompetes contain clauses that refer to a time and distance from all offices owned by the company, which can span many cities and even states.
My situation is different than a typical employment contract. I didn’t sell my practice with the intent to potentially leave, so the restrictions didn’t really impact me personally. I’m not at a stage in life where I would want to start over. Knowing that these clauses exist does give me pause and reflect on life when I was an employee before I owned my practice.
Sympathy for Both Sides
Providers who have noncompetes feel that the patients they have cared for over the years are “theirs,” that they built their own practice within a practice and therefore should have the option to continue care after leaving. I sympathize with that; however, I know the risks, time and financial investment as an owner that are needed to grow a practice and believe that “reasonable” noncompetes are necessary to preserve that investment and foundation for a new provider to the practice.
For now, it is unclear what the future holds. The rules and regulations of health-care restrictive covenants remain at the state level (for more, see "Keeping it Legal" from this issue).
It is important for owners to understand their state’s regulations and for employees to know these regulations and read their contract carefully. If employees feel their contract non-compete makes them uncomfortable, they should look up the state rules or move on. The people on both sides of this issue will always feel that not enough was done to protect them when a relationship ends between a provider and a practice owner. OM
