Trade Secrets & Employee Mobility

As anticipated, following the end of the Federal Trade Commission’s proposed rule prohibiting employer noncompetes, states have ramped up their efforts toward limiting noncompete agreements, including some states that have specifically focused on health care noncompetes. We previously reported in 2024 that Pennsylvania passed The Fair Contracting for Health Care Practitioners Act that prohibited the enforcement of certain noncompete covenants entered into by health care practitioners and employers. Now, Louisiana, Maryland, and Indiana join the list of states limiting, or attempting to limit, the use of noncompete agreements in the health care industry.

Louisiana

On January 1, 2025, Act No. 273 (f/k/a Senate Bill 165) (the “Act”) became effective following Governor Jeff Landry’s approval. The Act enacts three subsections to Section 23:921, M, N, and O, which, as discussed further below, generally limit the timeframe and geographical scope of noncompetes for primary care and specialty physicians.

On July 17, 2024, Governor Josh Shapiro approved Pennsylvania’s first statute imposing limitations on the use of noncompetes in the state. The Fair Contracting for Health Care Practitioners Act (the “Act”) prohibits the enforcement of certain noncompete covenants entered into by health care practitioners and employers. Here are the key points of the Act:

• The Act’s effective date is January 1, 2025.
• Subject to certain exceptions, a “noncompete covenant” entered into after January 1, 2025 is “deemed contrary to the public policy and is void and unenforceable by an employer.”
• A “noncompete covenant” is defined as an “agreement that is entered into between an employer and a health care practitioner in this Commonwealth which has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients, either practicing independently or in the employment of a competing employer after the term of employment.”

Our colleagues Peter Steinmeyer and Erik Weibust at Epstein Becker Green co-authored an article in Thomson Reuters Practical Law, titled “Expert Q&A on the FTC's Final Rule Banning Post-Employment Non-Competes.”

Following is an excerpt (see below to download the full version in PDF format):

On April 24, 2024, the Federal Trade Commission (FTC) announced the issuance of a final rule banning employers from entering into, enforcing, or attempting to enforce post-employment non-compete clauses with workers, subject to limited exceptions, and invalidating all ...

As our antitrust colleagues explained recently, on August 26, 2022, the Federal Trade Commission (FTC) published its “Strategic Plan for Fiscal Years 2022–2026,” as required under the GPRA Modernization Act of 2010.  Readers of this blog will be interested in two small, but important, items in the Strategic Plan related to noncompete agreements.

First, under “Objective 2.1: Identify, investigate, and take actions against anticompetitive mergers and business practices,” the FTC opines that “[a]nticompetitive mergers and business practices harm Americans through higher prices, lower wages, or reduced quality, choice, and innovation. Enforcement of antitrust laws provides substantial benefits to the public by helping to ensure that markets are open and competitive.” It then identifies certain “[s]trategies” that the FTC intends to pursue over the next five years, including “[i]ncreas[ing] use of provisions to improve worker mobility including restricting the use of non-compete provisions.” It’s unclear exactly what provisions it intends to increase its use of, but nonetheless the FTC will be focused on the issue.

Several states over the past few years have passed legislation prohibiting the use in noncompete agreements (and other employment-related agreements) of out-of-state choice-of-law and forum selection provisions. A few of these states’ laws include enforcement mechanisms with stringent penalties, such as California, which provides for injunctive relief and attorneys’ fees to an aggrieved employee; Washington, which entitles aggrieved employees to actual damages or statutory penalties of $5,000, as well as their attorneys’ fees; and, beginning in August, Colorado, where any violation of that state’s noncompete statute (including the prohibition on out-of-state choice-of-law and forum selection provisions) could lead to civil and criminal penalties.

You don’t hear much positive news these days about noncompete agreements. Instead, most national media outlets take cases of extreme abuse and frame them as the norm instead of the outliers that they are. And the national media also often portrays employers in a negative light for allegedly forcing noncompetes on employees who purportedly have no choice in the matter and receive no benefit from the transaction. The data does not bear this out—indeed, according to reputable studies, workers who are presented with noncompetes before accepting jobs receive higher wages and more training, and are more satisfied in their jobs than those who are not bound by noncompetes—but that is beside the point when there is an attention-grabbing story to be written.