while the law that made federal trade commission Could shield nonprofits from agency oversight, some former FTC employees say, adding that the commission could invoke other laws to prevent individual nonprofit hospitals from using non-compete provisions in employment contracts.
FTC in January proposed a comprehensive ban on non-compete clauses, which many healthcare organizations use to prevent ex Prohibiting employees from working for local competitors for a specified period following their departure. Since the announcement, health advocates and industry observers have expressed Uncertainty about whether about 60% are short-term, non-public, acute-care hospital stays classified as a non-profit would be subject to the proposed rule.
FTC Act, which created the agency and outlined its scope In 1914, defines a corporation as a company “organized to carry on a business for the benefit of its or its members.” Some healthcare lawyers said the act definitively exempts nonprofits from FTC oversight, while others said the scope of the exclusion is unclear.
The agency says that Section 5 of the FTC Act, which it cites in the proposed non-compete rule, gives it broad authority to prohibit unfair forms of competition. The reach of the section has been debated in the courts.
A spokeswoman for the commission declined to comment on whether the non-compete provision ban would apply to nonprofit hospitals.
For-profit subsidiaries of nonprofit hospitals may be subject to the rule, but the ban generally won’t apply to nonprofits, said Ken Field, an antitrust partner at the law firm Hogan Lovells who is a staffer in the FTC’s Competition Bureau. Was a lawyer.
“Most of our nonprofit health system clients are largely exempt,” he said.
Still, the commission can enforce other laws in individual cases by agreeing to work around exceptions set forth in the FTC Act, said Amanda Waite, an antitrust partner at the law firm Norton Rose Fulbright and the FTC’s competition director. Former Staff Attorney at the Bureau.
“Section 5 of the FTC Act is not the only tool in the FTC’s toolbox,” she said. “Even if the reach of Section 5 doesn’t go that far, the agency will find a way to apply it to nonprofits.”
The FTC can invoke Section 1 of the Sherman Act, which states that every contract that restrains trade or commerce is illegal, if it believes that a noncompetitive provider’s noncompetitive arrangement harms competition among the workforce. , said Pratiksha.
“Not-for-profit systems, which are generally more risk-averse than for-profit companies, do not want to be on the opposite side of the FTC when the agency says they are treating workers unfairly,” Pratiksha said. Said. “The proper reading is that section 5 [of the FTC Act] doesn’t allow the rule to apply to nonprofits, but I wouldn’t rely on that as a compliance strategy.”
The FTC could also invoke Section 7 of the Clayton Act, which prohibits transactions that significantly reduce competition, Wait said, in contracts if a nonprofit health system plans to merge. uses non-compete provisions and the other does not, for example.
William Kovacic, professor of law at George Washington University, director of GWU Law School’s Competition Law Center and former FTC chairman, agreed that the agency could rely on the Clayton Act under certain circumstances.
Generally, however, the proposed non-compete rule does not apply to nonprofits, and Congress should eliminate the FTC Act’s outdated limitations to simplify the rule-making process, Kovacic said.
“The critical question is: why does this discrepancy persist and why doesn’t the US legislature fix it?” They said.
The bill, introduced in December by Reps. Pramila Jayapal (D-Wash.) and Victoria Spartz (R-Ind.), would give FTC authority over nonprofit hospitals regarding unfair competition cases.
future of the proposed ban
Many hospitals, health systems, physician groups, Insurance companies and pharmacy benefit managers Arm your employees with non-compete provisions to prevent them from working for a competitor and potentially sharing proprietary information. The previous employer can sue or withhold deferred compensation if the former employee breaches the contract. without federal policy, non compete agreement is ruled by a patchwork of state laws,
“A federal ban is necessary to stop an exploitative practice that suppresses wages, stifles innovation and prevents entrepreneurs from starting new businesses,” the FTC said in a January filing. News release.
The agency estimates that leaving future non-competitive clauses and eliminating existing ones would increase wages by about $300 billion a year.
The comment period for the proposed rule ended April 19, and the agency hasn’t publicized when the final version will be released. Many of the nearly 27,000 comments supported the proposed prohibition. However, others argued that non-compete clauses could encourage employers to invest in technology or boost compensation.
Hospital associations criticized the proposed ban following the announcement. If the ban applied only to for-profit entities, it would create an uneven playing field, a spokeswoman for the Federation of American Hospitals, which represents investor-owned hospitals, said during a Feb. 16 forum. The spokesperson said that the commission does not have the authority to make rules.
American Hospital Association The February 22 letter to FTC chair Leena Khan states that “by seeking to create a one-size-fits-all rule for all employees in all industries, the proposed regulation errs, especially because Congress did not give the FTC the authority to act.” given in such a comprehensive manner.
The rule is expected to be challenged in court. Some legal experts say the agency may use the judicial process, which could take years, to argue that it has authority over nonprofits under Section 5 of the FTC Act.
Barack Richman, professor of law and business at Duke University, said it’s unlikely the FTC will create a sweeping rule with loopholes through which 60% of hospitals can fit.
Richman said, “Where there is a policy will, there is a legal way.”
Lauren Berryman contributed.