Hospital orgs join cross-industry appeal for FTC to delay noncompete ban implementation

Hospital lobbies have signed on to a multisector letter of 230 industry associations and chambers of commerce urging the Federal Trade Commission (FTC) to bump the effective date of its ban on employee noncompete clauses.

Sent late last week, the letter outlines a “lack of Commission guidance on key pieces” of the final rule passed in a 3-2 April vote.

The letter also points to ambiguity amid the ban’s pending legal challenge, which the groups said could lead to unnecessary and “substantial legal costs” for employers rushing to implement a ban that may ultimately be overturned.

“Noncompete agreements have been enforceable since before the country’s founding. A short implementation delay of a few months should impose no meaningful costs, and certainly no unexpected costs, on anyone,” the groups wrote in their letter. “If the Commission ultimately succeeds in court, only a small number of noncompetes for policy-making senior employees entered into between September 4, 2024, and the final effective date would be impacted given the rule’s retroactivity requirements.”

Among the letter's signatories are the American Hospital Association and the Federation of American Hospitals, both of which have warned of the ban’s outsized impact on healthcare employers.

Others include the U.S. Chamber of Commerce—which filed its challenge in the courts just a day after the final rule was voted in—the Advanced Medical Technology Association, the Consumer Technology Association, insurance brokers associations and state-level chambers of commerce.

Barring any changes such as a court-ordered preliminary injunction, the FTC’s ban is set to go into effect Sept. 4. Noncompetes are estimated to affect 1 in 5 American workers, per the FTC.

The signatories’ warnings of limited clarity echo those of legal experts who have reviewed the final rule. Of note, the letter calls out a “functional” two-part test the FTC said it would apply to determine whether nonprofit organizations (which are generally outside of the commission’s reach) are conducting their operations in a way that would bind them to the ban’s restrictions.

The final rule included one such example of the exception, in which a nonprofit hospital is contracted or otherwise works with a for-profit entity to deliver clinical services. However, without further guidance or real-world examples of enforcement, it is still unclear where exactly the FTC will draw its line for nonprofits.

The groups’ letter also pointed to part of the final rule’s definition of a senior executive, which refers to those in a “policy-making position,” as another potential area of ambiguity.  

Federal agencies have not shied away from postponing a final rule’s effective date, the groups added. Earlier this year, the FTC elected to stay its CARS Rule, which aims to increase transparency in car buying, pending litigation, as did the Securities and Exchange Commission and the National Labor Relations Board for other contested rules, they wrote.

The FTC has said its ban has received “overwhelming” support in comments submitted by the public. The commission estimates that implementation would increase wages by $400 billion to $488 billion over the next decade and reduce spending on physician services by $74 billion to $194 billion during the same period.