Health Employee for a Nonprofit? The New Ban on Noncompete Contracts Might Not Help You

Harris Meyer

Many physicians and nurses are joyful in regards to the Federal Trade Commission’s new rule banning the usage of noncompete agreements in employment contracts. But they’re disillusioned that it might not shield those that work for nonprofit hospitals and well being care amenities, which give many of the nation’s care and make use of the most important variety of medical professionals.

In April, in a 3-2 vote, the FTC approved a final rule prohibiting contracts that forestall an worker from taking a job with a competitor. Calling the noncompete agreements “a widespread and often exploitative practice,” an company announcement described them as an unfair technique of competitors that depresses wages and hinders new enterprise formation.

The rule bars employers in most industries, together with well being care, from utilizing contract clauses that block workers from leaving for different jobs or beginning a competing enterprise in the identical geographic space for a set time frame.

But that doesn’t assist many well being professionals, as a result of the FTC Act provides the company authority over corporations organized to function for revenue however not over nonprofit, charitable organizations, that are additionally tax-exempt.

Still, the company famous some nonprofits may very well be sure by the rule if they don’t function as true charities. The rule establishes a two-part take a look at to find out if the FTC has jurisdiction over a nonprofit — whether or not the group is carrying on enterprise for less than charitable functions, and whether or not its revenue goes to public somewhat than non-public pursuits.

“Our rulemaking record includes powerful stories from health care workers who are employed by nonprofits about how noncompetes hurt patients and providers,” stated FTC Commissioner Rebecca Kelly Slaughter, certainly one of three Democratic commissioners, in comments earlier than the April 23 vote. “I do not think there is a good justification for them to be excluded from this rule.”

Noncompete contract phrases have become increasingly common for physicians, nurse practitioners, and different medical professionals in hospitals and numerous well being care amenities. Some suppliers say these agreements have forced them to leave their communities and sufferers behind in the event that they wished to exit unethical or unsafe office circumstances.

Nearly 64% of U.S. neighborhood hospitals are nonprofits or government-owned, and so they make use of most of the nation’s medical professionals. As of 2022, practically three-quarters of U.S. physicians had been employed by hospital systems or other companies, each nonprofit and for-profit.

Based on their designation as charities that don’t need to pay revenue or property taxes, U.S. nonprofit hospitals acquired a complete estimated tax exemption of $28 billion in 2020, in accordance with KFF, a nonpartisan analysis group.

That exceeded the estimated $16 billion they spent on charity look after sufferers unable to afford their medical payments, KFF stated.

Physician and nursing teams say it is unnecessary to deal with nonprofit hospitals in another way as a result of they are just as money-driven as for-profit hospitals. Patients, they are saying, will profit if suppliers are free to name out unsafe circumstances and alter jobs. “Giving physicians freedom of movement will force hospitals to compete to improve working conditions,” stated Jonathan Jones, instant previous president of the American Academy of Emergency Medicine.

Chad Golder, basic counsel and secretary of the American Hospital Association, which represents largely nonprofit hospitals, stated the rule would enhance well being care prices and cut back affected person entry by triggering hospital bidding wars for physicians. He predicted the FTC would attempt to apply the rule to each nonprofit and for-profit hospitals.

“They aren’t saying exactly what they’ll do, but it’s a pretty significant move for them to say we’ll apply our own test to determine if we can regulate a nonprofit,” Golder stated. “Nonprofit entities now will need to be extra careful.”

In addition, some nonprofit hospitals have joint ventures with for-profit hospitals and medical teams. That might create sophisticated questions on whether or not their worker contracts come beneath the rule, stated Chip Kahn, president and CEO of the Federation of American Hospitals, which represents for-profits.

The new rule arose from President Joe Biden’s 2021 govt order instructing the FTC to curb the unfair use of noncompete agreements, a part of his broader mandate to spice up U.S. financial competitors and employee mobility.

The FTC argued that banning noncompetes, which it stated cowl 1 in 5 American staff, would decrease well being care prices by as much as $194 billion over the following decade. It will guarantee Americans “freedom to pursue a new job, start a new business, or bring a new idea to market,” FTC Chair Lina Khan stated.

The rule additionally prohibits contract phrases that operate like noncompetes to cease workers from leaving to work for competing corporations or begin their very own companies. These would possibly embrace overbroad nondisclosure agreements, coaching compensation provisions, and nonsolicitation clauses.

“No one should be trapped in an unsafe job by onerous contracts that prevent them from taking another job,” stated Brynne O’Neal, a regulatory coverage specialist at National Nurses United, the career’s largest devoted labor union within the U.S. Hospitals, she stated, use training repayment agreement provisions that require nurses to pay as a lot as $30,000 in coaching prices in the event that they depart, basically locking them of their jobs.

California, Minnesota, North Dakota, and Oklahoma already ban enforcement of noncompete clauses for all workers of each nonprofits and for-profits, whereas about nine other states prohibit noncompetes for physicians. Even in states with out bans, judges have invalidated noncompetes after they have discovered them to be overbroad or unreasonable.

Hospital executives argue that the noncompete rule will pressure them to compete towards one another to rent physicians and different suppliers and in the end price them extra, and that it benefits nonprofits over for-profits. “All it would do is increase the price of labor in a field that already has labor shortages and thin margins,” Golder stated.

“The nonprofit hospital across the street could pursue our employees, while their employees would be protected, and that’s a basic fairness issue,” Kahn stated.

But Clifford Atlas, an employment lawyer with Jackson Lewis in New York, stated that argument towards the noncompete rule “won’t fly” in courtroom as a result of stopping competitors for the companies of physicians or different staff shouldn’t be a enterprise curiosity that’s protected by regulation or public coverage.

The rule is ready to take impact in September, although enterprise teams have filed two federal lawsuits towards it in Texas and one in Pennsylvania. Many authorized consultants predict that conservative judges will strike down the rule on the grounds that it exceeds the FTC’s statutory authority.

Physician and nurses’ teams hope the FTC rule, no matter its destiny within the courts, helps persuade hospitals and different well being care employers to cease utilizing noncompetes and spurs more states to ban them.

“We’re telling our members it could be struck down, but we’re asking them to renegotiate their contracts,” stated Jones of the American Academy of Emergency Medicine. “They should be asking their employers, ‘Wouldn’t you like to be on the right side and not to be seen as fighting against physicians and patients?’”

KFF Health News is a nationwide newsroom that produces in-depth journalism about well being points and is without doubt one of the core working packages at KFF—an impartial supply of well being coverage analysis, polling, and journalism. Learn extra about KFF.


This story will be republished free of charge (details).

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