Home Health & Hospice Week

It may be time to face a sobering fact. The FTC’s recent final rule, if it survives legal challenges, would invalidate most non-compete covenants currently in place at home health, home care, and hospice agencies.

Background: On April 23, the Federal Trade Commission finalized the rule prohibiting almost all employment-related non-compete arrangements (see HHHW by AAPC, Vol. XXXIII, No. 14). The rule bans restrictive covenants, labeling them as a violation of Section 5 of the Federal Trade Commission Act which prohibits unfair or deceptive acts or practices. As expected, legal challenges were filed quickly, with more likely to follow.

The regulation takes effect on Sept. 4 — not immediately — the FTC says in the rule published in the May 7 Federal Register.

Home health and hospice agencies may be hoping the rule doesn’t apply to them, but they need to examine the issue closely.

Strike 1: The FTC specifically declines an exemption request for the healthcare industry in the final rule. It contends employers have alternatives, like trade secret laws and non-disclosure agreements (NDAs), to protect proprietary and other sensitive information. It also maintains that instead of using non-competes to lock in workers, employers can retain employees by improving wages and working conditions.

However, the rule may not apply to workers at nonprofit entities. The rule states that it does not apply to any business that is not “organized to carry on business for its own profit or that of its members.” Some observers interpret this to mean nonprofits are off the hook, especially since the FTC usually doesn’t have authority over nonprofits.

Strike 2: Not so fast, suggest attorneys Dana Stutzman, John Bowen and Abigail Kaericher with law firm Hall Render in online analysis of the rule. “If entities claiming tax-exempt status are structured and operated to generate profits, they may still be covered by the Final Rule,” Stutzman, Bowen and Kaericher warn.

The reality is that simply self-identifying or claiming tax-exempt status in tax filings won’t be enough, experts fear.

You’re out: The final rule makes it clear that not all nonprofits will be exempt. “The Commission has taken the position that a nonprofit corporation will be subject to the Commission’s jurisdiction if it is a ‘corporation,’ defined, in part, under the rule as an entity that is ‘organized to carry on business for its own profit or that of its members,’” point out attorneys with law firm Polsinelli in online analysis of the rule.

Even if “the FTC’s lack of clear jurisdiction over nonprofit entities under the FTC Act … insulate[s] a significant segment of the health care industry from enforcement,” nonprofits should stay wary, the Hall Render attorneys advise. “Given the clear focus and stated concerns from the FTC with competition for health care workers, companies should be mindful of other mechanisms that the FTC may use, including invoking Section 1 of the Sherman Act,” they warn.

Meanwhile, the FTC did let up in a few areas, as compared to the proposed rule.

For example: To streamline compliance, the final rule eliminates the burdensome proposed provision that would have required employers to legally modify existing non-competes by formally rescinding them.

Rather than actively rescinding existing noncompete clauses, “the final rule instead merely requires that employers provide notice to workers bound to an existing noncompete that

the noncompete will not be enforced,” explain attorneys with law firm Skadden, Arps, Slate, Meagher & Flom in online analysis. And the rule “significantly expand[s]” the “sale of business” exception, the Skadden attorneys cheer (see story, this page).

What’s ahead: Pending litigation may significantly delay or even stop implementation of the rule. But risk-averse agencies would be wise to proceed with preparations for compliance, legal experts suggest.

Note: The final rule is at www.govinfo.gov/content/pkg/FR-2024-05-07/pdf/2024-09171.pdf.