FTC Non-Compete Rule Halted: Key Insights for Dental Practices

Recently, a significant development emerged for dental practice owners and administrators: the Federal Trade Commission (FTC)’s proposed ban on non-compete agreements has been temporarily paused. This delay, issued by U.S. District Court Judge Ada Brown in the Northern District of Texas, postpones the rule that was initially set to take effect soon. (You can read the post we wrote about this rule when it was announced here.)

The FTC’s Rationale

The FTC’s proposed rule aims to promote labor mobility and enhance wage growth by eliminating non-compete clauses that restrict employees from changing jobs. The FTC argues that these agreements inhibit innovation and economic growth, impacting nearly 30 million Americans. The proposal received broad public support, with many advocating for a national standard to supersede restrictive state laws.

Business Community Concerns

On the other side of the coin, the rule encountered significant opposition from the business community. Organizations like the U.S. Chamber of Commerce contend that the FTC has overreached its authority, arguing that non-compete agreements are vital for protecting proprietary information and maintaining business stability. These agreements are seen as crucial for fostering investment in employee training and protecting business interests.

Potential Disruptions

Legal challenges emphasize the potential economic and operational disruptions the rule could cause. Critics highlight that implementing the rule could lead to substantial upheaval across industries, suggesting that the FTC’s approach is too aggressive. They advocate for a balanced solution that considers both worker mobility and the contractual protections businesses rely on.

Implications for Dental Practices

For dental practices, the impact of this rule is particularly pertinent. Non-compete agreements are frequently used to protect sensitive business information and keep employees from approaching former patients when they leave a practice or open their own. Eliminating these agreements could force dental practices to rethink their hiring and retention strategies.

Looking Ahead

The Supreme Court’s Loper Bright Enterprises v. Raimondo finding in June could also impact the legality of this FTC rule since it shifted how courts interpret the statutory authority of federal agencies. The outcomes of these cases will likely set important precedents for federal regulation of employment practices, affecting how non-compete agreements and other contracts are managed.

We are committed to helping our dental practice clients understand these regulatory changes and will continue to provide updates on any developments that may impact your practice. 

FTC Bans Noncompetes – What this Means for your Dental Practice

Recently, the Federal Trade Commission (FTC) announced a new rule that significantly impacts non-compete agreements, particularly for dental practices. Traditionally, noncompetes are used to prevent departing employees from immediately going to work for their competitors, and the FTC estimates more than 30 million Americans are subject to one. 

Cancelled noncompete agreement

Scope of the Rule: 

The FTC’s new rule bans noncompete agreements for most employees, applying retroactively and prospectively. For employees earning less than $151,164 per year (the Department of Labor’s 2025 salary threshold for a “highly compensated employee”), noncompetes are entirely prohibited. For those making above this threshold, agreements remain enforceable only for senior executives with policymaking authority, but employers can’t enter into – or attempt to enforce – new ones even for senior executives. 

Why the FTC took this step:

According to FTC Chair, Lina M. Khan, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned. The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.” Furthermore, the FTC claims, “The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade. In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.”

Sale of Business Exemption:

Noncompetes entered into with business owners in connection with the sale of a business will remain enforceable under the rule. However, while the seller of the business entity can agree to a non-compete individually, they cannot do so on behalf of any employees.

Implications: 

Dental practices will need to inform their past and present employees that any existing noncompetes are now unenforceable within 120 days from the date the new rule is published in the Federal Register, currently estimated to be around August 21, 2024. Non-solicitation, non-recruitment, and non-disclosure agreements are not banned, provided they don’t effectively function as noncompetes.

Legal Challenges: 

Several lawsuits have already been filed in both state and federal courts against the FTC’s authority to issue this ban. These legal proceedings are ongoing, and we will monitor developments and publish updates as new information becomes available. 

Next Steps: 

For now, hold off on notifying employees until we get closer to the 120-day deadline later this summer. With legal action already in play, the final ruling could change.  

You can read the FTC’s statement here: https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes