FTC Attempts to Ban Noncompetes

Yesterday, the FTC passed its proposed ban on noncompetes along party lines.

This is not a done deal. The US Chamber of Commerce (which is a large lobbying organization, not a part of the government) intends to sue immediately, and they won’t be alone. Among other complaints, the Republican members of the committee who voted against it and the future litigants do not believe the FTC has the authority to do this.

The FTC’s final rule–including a very long full discussion of their rationale and authority–is here.

One of the exceptions of interest to those following consolidation in healthcare:

The final rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity.

The original proposal had a limitation to the sale exception that defined a “substantial owner, substantial member, and substantial partner” to “mean an owner, member, or partner holding at least a 25 percent ownership interest in a business entity.”

The final rule does not require the seller to have a minimum ownership stake for the exception to apply.

This presumably means that, for example, all doctors who sell their practices to private equity are still bound by their noncompetes, regardless of practice size. (Non-legacy “partners” who weren’t partners at the time of sale would be free).

The new rule, if it survives, will be retroactive to essentially all noncompetes starting on the effective date ~120 days from now.

The FTC has argued it has authority over at least some nonprofits here. They bookend their argument thusly:

The final rule applies to the full scope of the Commission’s jurisdiction. Many of the comments about nonprofits erroneously assume that the FTC’s jurisdiction does not capture any entity claiming tax-exempt status as a nonprofit. Given these comments, the Commission summarizes Commission precedent and judicial decisions construing the scope of the Commission’s jurisdiction as it relates to entities that claim tax-exempt status as nonprofits and to other entities that may or may not be organized to carry on business for their own profit or the profit of their members.


The Commission stresses, however, that both judicial decisions and Commission precedent recognize that not all entities claiming tax-exempt status as nonprofits fall outside the Commission’s jurisdiction.

See pages 50-54 of the final rule above for their argument regarding jurisdiction over nonprofits.

The only true exceptions to the ban are senior executives and the bona fide sale provision.

The press release is here.

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