Many physicians and nurses are happy about the Federal Trade Commission’s new rule banning the use of noncompete agreements in employment contracts. But they are disappointed that it may not protect those who work for nonprofit hospitals and health care facilities, which provide most of the nation’s care and employ the largest number of medical professionals.
In April, in a 3-2 vote, the FTC approved a final rule prohibiting contracts that prevent an employee from taking a job with a competitor. Calling the noncompete agreements “a widespread and often exploitative practice,” an agency announcement described them as an unfair method of competition that depresses wages and hinders new business formation.
The rule bars employers in most industries, including health care, from using contract clauses that block employees from leaving for other jobs or starting a competing business in the same geographic area for a fixed period of time.
But that doesn’t help many health professionals, because the FTC Act gives the agency authority over companies organized to operate for profit but not over nonprofit, charitable organizations, which are also tax-exempt.
Still, the agency noted some nonprofits could be bound by the rule if they do not operate as true charities. The rule establishes a two-part test to determine if the FTC has jurisdiction over a nonprofit — whether the organization is carrying on business for only charitable purposes, and whether its income goes to public rather than private interests.
“Our rulemaking record include …
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Many physicians and nurses are happy about the Federal Trade Commission’s new rule banning the use of noncompete agreements in employment contracts. But they are disappointed that it may not protect those who work for nonprofit hospitals and health care facilities, which provide most of the nation’s care and employ the largest number of medical professionals.
In April, in a 3-2 vote, the FTC approved a final rule prohibiting contracts that prevent an employee from taking a job with a competitor. Calling the noncompete agreements “a widespread and often exploitative practice,” an agency announcement described them as an unfair method of competition that depresses wages and hinders new business formation.
The rule bars employers in most industries, including health care, from using contract clauses that block employees from leaving for other jobs or starting a competing business in the same geographic area for a fixed period of time.
But that doesn’t help many health professionals, because the FTC Act gives the agency authority over companies organized to operate for profit but not over nonprofit, charitable organizations, which are also tax-exempt.
Still, the agency noted some nonprofits could be bound by the rule if they do not operate as true charities. The rule establishes a two-part test to determine if the FTC has jurisdiction over a nonprofit — whether the organization is carrying on business for only charitable purposes, and whether its income goes to public rather than private interests.
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