How the Non-Compete Agreement Ban Affects Nurses
The Federal Trade Commission’s (FTC’s) final rule banning noncompete agreements is a big step forward for the healthcare workforce. It allows doctors and nurses—and employees in general—the freedom to change jobs.
What Is a Noncompete Agreement?
A noncompete agreement is a binding covenant not to compete with your employer. It prevents employees from working for competitors for a specified period after they leave a job, generally six months to two years. This kind of legal agreement restricts a significant number of nurses and other healthcare workers.
Changing jobs is often a way to get higher pay, and noncompetes may contribute to unduly slow wage growth. A study published by Cornell University finds that workers in states that enforce noncompetes have lower wages than comparable workers in states that do not.
Why Do Nurses Sign Such Agreements?
It can take months to find jobs—especially for new nurses—so nursing professionals may feel pressure to accept the first offer they receive. Furthermore, the agreement sometimes appears within the contract or among the paperwork during the orientation, so nurses may simply sign without reading carefully. Ultimately, many clinicians feel that they effectively have no choice.
Key Elements in a Noncompete Agreement or Clause
Non-compete clauses or agreements were initially devised to protect business investments and trade secrets, but they limit employees’ professional growth and discourage independent initiatives.
Noncompete agreements impose limitations on workers after leaving a job, including the following restrictions.
- The employee or ex-employee will not work for competing organizations or start a competing business within a specified geographical area, such as a city, metropolitan area, state, or radius, and a stipulated period.
- The employee will not attempt to provide similar services to patients, customers, or the employer’s clients within the same period and area.
The agreement may limit these restrictions to jobs in the nurse’s specialty, creating a situation in which the nurse either has to move out of the area or invest in additional training to look for work.
When Will Non-Competes Be Banned?
The ruling was published in the Federal Register on May 7th, 2024, and becomes effective 120 days after the official publication. However, the implementation of the ban is likely to be held up due to legal challenges, such as a lawsuit with the Chamber of Commerce. With this litigation, there is considerable uncertainty regarding the final timeline of the FTC noncompete ban.
The FTC is a federal agency, as the name says, so the ban they have ruled on noncompetes applies nationwide. However, as of April 2024, action had already been taken to prohibit this type of restrictive clause—with a few exceptions—in four states:
- California
- Minnesota
- North Dakota
- Oklahoma
In the meantime, other states have established partial bans.
Non-Compete News for Healthcare
Certain states limited non-competes earlier, especially in healthcare.
At least 15 states, including Connecticut, Indiana, and Maryland, have statutes, regulations, or court doctrines that limit non-competes specifically for doctors, nurses, and other healthcare practitioners.
- Connecticut implemented a statute that limits non-competes with advanced practice registered nurses and certain other healthcare professionals.
- Indiana employers can no longer enter into noncompete agreements with primary care providers.
- In April of 2024, the Governor of Maryland signed legislation prohibiting non-compete agreements for healthcare workers with a yearly compensation of under $350,000, limiting this agreement to those with an income above this threshold.
These states are not sitting back, waiting for federal non-compete legislation.
Is the Ban a Two-Edged Sword?
The FTC’s mission is to protect consumers and promote the non-compete agreement ban in defense of the right to change jobs, which may also favor the following essential issues:
- Higher pay for workers
- Lower healthcare prices
- More innovation
The FTC expects the ban to reduce healthcare costs by up to $194 billion by the next decade and increase the number of new businesses.
The U.S. Chamber of Commerce is the voice of business and opposes the ban, although not all businesses share its position. The Chamber considers non-compete agreements a vital safeguard against leaking sensitive information to competitors, including the following clear examples:
- Lists of clients
- Client data
- Trade secrets
The Chamber also foresees that the ban will lead to less investment in training and development.
In the case of healthcare, clinician retention may be a significant motivation for such agreements, more than the protection of trade secrets, since healthcare organizations intentionally share information and knowledge to enhance and optimize the quality of patient care.
Although the Chamber’s concerns bring up valid issues, other approaches are available. Trade secrecy laws and non-disclosure agreements can protect business information or research. Furthermore, a healthy, appreciative work environment, competitive compensation, and valuable on-the-job training go a long way in retaining personnel.
Has Business Suffered from the Prohibition of Noncompetes?
Perhaps, but California is an excellent example of a state with a long history of restrictions on non-competes, dating back to 1872—yes, the 19th century! With its iconic Silicon Valley, California is well-known for technological innovation, and indeed, tech companies have sensitive information they need to protect to keep a competitive edge. Still, they certainly have done surpassingly well with the broad prohibition of noncompete agreements.
Recently, legislation has made this type of agreement or clause unenforceable in California. Will this draw new talent to the state?
Are Non-Competes Enforceable?
States vary in their approaches regarding the enforceability of non-compete agreements. Indeed, some states prohibit non-competes, while others see them as overly restrictive on competition and freedom to work—meaning non-competes are only enforceable under certain circumstances or for high-level executive positions.
However, even in states that allow non-compete agreements, courts often look at several factors when determining if a specific non-compete is enforceable:
- Does the non-compete agreement protect the legitimate business interests of the employer?
- Is protecting an employer’s legitimate business interests, particularly confidential information, necessary?
- Are the time and geographic limitations reasonable?
Not every noncompete will be enforceable, even in states that permit such agreements.
How Many Nurses Are Subject to Non-Competes?
According to data published by the Economic Policy Institute, approximately 28 percent of private healthcare workplaces require non-compete agreements from all their employees, including nurses. This control is under scrutiny, changing state-by-state, and will undergo a sweeping transformation when the FTC ruling goes into effect. When it does, you will have more freedom and flexibility in the industry to take control of your career—and, therefore, your destiny.
Nursa cares about fairness and freedom, offering nurses more ways to find high-paying, flexible PRN nursing jobs.
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