By Gonzalo Law

Introduction

Noncompete clauses are provisions in employment contracts that prohibit an employee from working in a similar industry or company as their employer during or after their employment ends. The main reason for many of these clauses is for employers to protect trade secrets, retain top talent, maintain or increase the value of the employer goods or services, and protecting confidential information. Some professions see the impacts of these noncompete clauses more than others and a prime example is in healthcare industry with physician contracts.

How Physician Contracts are Affected

         Noncompete clauses are generally not favored in the medical profession because from one vantage point, they seem to hinder patient access to medical care, yet from the other point of view, they also preserve top talent to provide medical care.  They also enable employers to offer the value of their employees over a continued period of time in that area. As such, these clauses are still present in many physician contracts.^[1]

         Non-compete clauses are usually enforceable as long as they “protect legitimate business interests without imposing undue hardship on the physician or harming public interests.”^[2] There are, however, more specific rules depending on the state. In the past, courts have held that noncompete clauses in certain physician contracts are unenforceable because they were overly broad for the geographic region a physician was located and because they can be seen to unreasonabley restrict the ability of the physician to practice.^[3] 

For example, a physician non-compete that restricts a Manhattan physician with a 10 mile radius would restrict them from working on almost half the island of Manhattan and would be unreasonable as that would exclude numerous hospitals and clinics in that radius.  So, that type of noncompete would not be enforceable.  However, in a more suburban area, where there are greater distances between facilities, this is more reasonable.  Courts look at the specific facts of the case and the governing state law.

With the FTC’s ban on non-compete agreements that was announced in April, physicians would have had more employment opportunities if they decided to leave their current employer.^[4] This is because the ban prohibits employers from including non-compete clauses in employee contracts and would have repealed the existing ones.^[5] This ban was seen by many as a win-win for doctors and patients.  However, in August of 2024, a federal judge officially and permanently blocked the ruling by the FTC.^[6]  As such, non-competes remain the law of the U.S. unless there are specific state bans that restrict them, such as the case in states like California.^[7]

Non-Compete Clauses in Ohio

         Ohio has enforced noncompete clauses in the past to protect the legitimate business interests of employers as long as they are reasonable and do not provide an undue hardship on the employee, the FTC ban would have likely made these existing clauses generally unenforceable.^[8]

         For doctors, the FTC ban would give them more freedom to switch employers and even start their own practice without breaching a previous employment contract.^[9] In the past, courts in Ohio have disliked noncompete clauses because of how they limit access to medical care,^[10] so the FTC ban aligns with how many courts approach these clauses by limiting the enforceability.  However, with the federal judge that has permanently blocked the FTC ban, this matter will have to be reviewed by the courts of Appeals.^[11]  Until then, non-competes are still valid and enforceable in the U.S. unless banned or restricted by state law.

Non-Compete Clauses in Florida

         Similar to what is seen in Ohio, the FTC ban on noncompete clauses meant that these clauses would generally be unenforceable in Florida. Section 501.204 of the Florida Statutes states that unfair methods of competition are unlawful.^[12] The ban on the FTC rule, allows noncompetes to continue and supports this Florida rule and the prior non-compete rules that allow them to remain in effect.^[13]

Conclusion

         In short, while noncompete clauses have prevented physicians from going to direct competitors to work under their noncompete clause, the recent FTC ban would have allowed them the freedom to do so and this benefits physicians as well as patients.  We now watch to see if any of the U.S courts of appeals will have this issue resurface and require it to be heard at the higher courts of the land.

Employers should continue to watch the situation closely and consult with legal counsel for guidance on their particular matter. 

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^[1] MetroHealth Sys. v. Khandelwal, 183 N.E.3d 590, 601 (Ohio Ct. App. 2022).

^[2] Cmty. Hosp. Grp. Inc. v. More, 838 A.2d 472, 479 (N.J. Super. Ct. App. Div. 2003).

^[3] Shenandoah Women’s Healthcare, P.C. v. Scheidt, No. CL16-2052, 2016 Va. Cir. LEXIS 589 (Cir. Ct. Aug. 24, 2016).

^[4] FTC Announces Rule Banning Noncompetes, Fed. Trade Comm’n (Apr. 23, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes.

^[5] Id.

^[6] Brian Burke et al., United States: FTC’s Noncompete Ban Blocked – What’s Next?, Glob. Compliance News (Sept. 3, 2024), https://www.globalcompliancenews.com/2024/09/03/united-states-ftcs-noncompete-ban-blocked-whats-next/.

^[7] 16 C.F.R. § 910.4.

^[8] Khandelwal, 183 N.E.3d at 595.

^[9] FTC Announces Rule Banning Noncompetes, supra note 4.

^[10] Wigton v. Univ. of Cincinnati Physicians, Inc., 179 N.E.3d 241, 244 (Ohio Ct. App. 2021).

^[11] Texas Federal Judge Strikes Down FTC Non-Compate Ban, JD Supra (Aug. 22, 2024), https://www.jdsupra.com/legalnews/texas-federal-judge-strikes-down-ftc-8603150/.

^[12] Fla. Stat. Ann. § 501.204 (LexisNexis).^[13] FTC Announces Rule Banning Noncompetes, supra note 4.