Home Health & Hospice Week

Tip: Know the narrow exceptions.

The new Federal Trade Commission final rule banning nearly all noncompetes clocks in at 165 dense pages. Read on for the highlights.

When effective, the rule will:

1. Completely ban new non-competes for workers. The term “workers” includes, but is not limited to, employees (even senior executives), independent contractors, externs/interns, apprentices, sole proprietors, and volunteers.

Watch out: The term “workers” is so broad that nearly all staff may likely fall under this definition unless an exception to the final rule applies, caution attorneys with law firm McGuire Woods in online analysis. This could include “all clinical providers, including physician assistants and registered nurses, non-clinical personnel,” non-owner physicians, physician owners and partners, and independent contractors, they predict. They go on to clarify that it will be important to distinguish when a worker is “providing services” to a person, which appears to be the FTC’s touchstone for being a worker, even if such determination is not easily defined.

2. Prohibit employers from enforcing existing non-competes with workers.

Exception: Existing non-competes for senior executives can remain in force. The rule defines senior executives as employees who earn over $151,164 in “total annual compensation” and possess “policy-making authority,” which is “final authority to make policy decisions that control significant aspects of a business entity.”

However: This does not include authority limited to just advising or exerting influence over such policy decisions. The authority must be over the entire enterprise, and not just a department or division.

3. Require employers to formally notify impacted workers that their non-compete clause is no longer in effect and will not be enforced. The notices must be sent out on or before Sept. 4, so get prepared.

Tip: To aid employers’ compliance, the rule includes the requirements for acceptable means of communication along with a model notice. This section also allows for optional notices in additional languages, but only in an FTC-provided translation of the model language.

Other highlights of the rule include that it:

• includes an exception that allows non-competes between the seller and buyer of a business. The rule states it will not apply to a non-compete clause that is entered into based upon: a bona fide sale of a business entity; a person’s ownership interest in a business entity; or all or substantially all of a business entity’s operating assets.
• does not cover franchisor/franchisee non-competes. The FTC discusses and concludes that non-competes used in the context of franchisor/franchisee relationships will remain subject to state common law and federal and state antitrust laws, including section 5 of the FTC Act.
• does not limit or affect enforcement of state laws that restrict non-competes where the state laws do not conflict with the final rule, but it preempts state laws that conflict with the final rule.

Meaning: States may impose stricter requirements and restrictions with respect to non-competes provided that those restrictions afford greater protections to employees than those contained in the final rule. But, the final rule supersedes all state laws, regulations, orders and interpretations that are inconsistent with the final rule.

• The rule will not apply to non-compete actions that occur prior to the effective date. If an employer has brought suit against a former employee for violation of a non-compete, the final rule will not retroactively stop that claim.

Note: The FTC fact sheet on the rule is at www.ftc.gov/system/files/ftc_gov/pdf/Non-Compete-Fact-Sheet.pdf.