This week, the Federal Trade Commission (FTC) adopted a comprehensive ban on non-compete clauses in employment contracts with no exceptions for the health care industry. The new rule takes effect 120 days after publication in the Federal Register, but legal challenges are likely to stall implementation of all or part of the regulations.

The rule applies to all workers, with a limited exception for existing non-competes with senior executives — those with total annual compensation of at least $151,164 and who serve in a “policy making position.” Non-competes with senior executives can remain in force, but businesses may not include non-competes in new contracts issued to senior executives after the effective date of the rule.

The final rule does not limit or affect enforcement of State laws that restrict non-competes where State laws do not conflict with the final rule. In cases where State laws conflict with the final rule, the rule prevails.

The FTC does not have the authority to apply the rule to nonprofits. However, the FTC makes clear in the rule that not all entities claiming tax-exempt status as nonprofits fall outside its jurisdiction, which means that hospitals and other health care entities claiming tax-exempt status as nonprofits could still fall within final rule’s purview.

Once the rule takes effect, employers will be required to provide notice to workers with existing non-competes that they are no longer enforceable.

The U.S. Chamber of Commerce has already filed suit against the rule, and other challenges are expected. ASGE is following developments and will share information as it becomes available.