FTC extends comment period for proposed rule banning noncompetes by 30 days

Updated March 7 at 10:00 a.m.

The Federal Trade Commission (FTC) unanimously voted to bump back the public comment period for its proposed Non-Compete Clause Rule by a month, the federal regulator announced Monday. 

The new deadline for comments on the proposed rule, which would bar many employers from imposing noncompetes on workers, is April 19.

Healthcare industry groups were among the 100 organizations that in late January petitioned the FTC (PDF) for "sufficient time to assess the potential consequences of the rulemaking and develop insightful comments for the commission to consider.” The American Hospital Association has since come out in opposition of the proposed rule as is (see below).

Feb. 23

AHA urges FTC to withdraw proposed rule banning noncompetes

The American Hospital Association (AHA) has come out against the FTC's proposed Non-Compete Clause Rule, writing in a letter to the agency that it should be withdrawn due to insufficient congressional authority and the unforeseen impacts it could have on a volatile healthcare labor market.

“The proposed regulation errs by seeking to create a one-size-fits-all rule for all employees across all industries, especially because Congress has not granted the FTC the authority to act in such a sweeping manner,” AHA General Counsel and Secretary Melinda Reid Hatton wrote to FTC Chair Lina Khan. “Even if the FTC had the legal authority to issue this proposed rule, now is not the time to upend the healthcare labor markets with a rule like this.”

The rule proposed by the FTC in early January spans most of the nation’s industries and “would generally prohibit employers from using noncompete clauses” for independent contractors and paid or unpaid employees, the regulator said at the time. The proposal was ordered and is supported by President Joe Biden and, per the FTC, is expected to increase workers’ earnings by almost $300 billion.

In late January, the AHA was one of 100 organizations that called on the FTC (PDF) to extend the 60-day comment period to give industries affected by the regulation “sufficient time" to review its potential impact.

As of Wednesday’s letter and accompanying comments (PDF), the hospital lobby has now taken a formal position opposing the proposed rule.

Among the primary issues with the current proposal, Hatton wrote, is that certain hospital industry employees such as physicians and senior executives “do not present the same considerations with respect to non-compete agreements as other types of employees.”

Chief among those considerations is that the FTC has no authority to apply its proposed rule to nonprofit hospitals and health systems, meaning that only for-profit hospitals would be subject to the increased regulatory burden, Hatton wrote. Data from the AHA suggest that nearly 79% of for-profit hospitals are located in the same Hospital Referral Region as at least one nonprofit hospital, meaning that the latter would have an advantage in securing these specialized employees in their markets.

“We, therefore, urge the agency to exempt for-profit hospitals from any final rule it issues until it can better study the impact that applying the rule in an uneven fashion, as the law requires, would have on labor markets that include both nonprofit and for-profit hospitals,” Hatton wrote.

The AHA also cautioned against any labor market upheaval at a time when the industry is seeing widespread workforce shortages. The proposed rule, the group argued, “would instantly invalidate millions of dollars of existing contracts while exacerbating problems of healthcare labor scarcity, especially for medically underserved areas like rural communities.”

Even before arguments of the proposed rule’s potential outcomes, AHA made several arguments asserting the FTC lacks the statutory authority to issue its proposed rule—an issue questioned by employment attorneys last month when the proposal was unveiled. Further, several states have already implemented statutes regulating non-compete agreements “in a nuanced manner” that is consistent with local conditions and healthcare-specific issues, the AHA said.

This considered variation, on its own, makes clear that a one-size-fits-all rule for physicians is unwise, let alone a one-size-fits-all rule across the entire United States economy,” Hatton wrote. “Consequently, absent any federal statutory authority to impose a sweeping rule of this kind, questions regarding non-compete agreements’ enforceability should continue to be left to the states.”

The FTC has received more than 13,000 written comments from stakeholders on the proposed rule and last week held a public forum on the subject, during which participating speakers from the healthcare industry generally took issue with non-competes.