The Federal Trade Commission this week finalized a rule that will ban noncompete clauses nationwide, protecting the fundamental freedom to change jobs, increasing innovation and fostering new business formation.

The California Medical Association (CMA) strongly supports the new rule, which is consistent with California state law. Studies have shown that noncompete agreements encourage consolidation and drive-up health care prices.

Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent employees from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, relocate, or leave the workforce altogether. An estimated 30 million workers—nearly one in five Americans—are subject to a noncompete.

California led the nation in eliminating noncompete clauses more than 150 years ago. In 1872, California stopped enforcing (and effectively banned) noncompete clauses. California’s noncompete ban has successfully protected both physicians and patients. It has allowed physicians to freely advocate on behalf of their patients without inappropriate interference. It has shielded physicians from undue pressures that could undermine the quality of care or continuity of care for their patients, and safeguarded the sanctity of the physician-patient relationship.

Noncompete clauses often require health care workers to leave the field or relocate to change jobs, which is particularly harmful for underserved communities that already struggle to attract and retain physicians. California’s noncompete law protects patient access to care in underserved areas by allowing physicians to change jobs but remain in those regions to care for their communities. CMA also believes that the California noncompete law has discouraged some vertical consolidation between hospitals and physicians, which can lead to increased health care costs.

Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable. Existing noncompetes for senior executives – who represent less than 0.75% of workers – can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. 

The ban will have far-reaching benefits for the health care system, an industry that frequently relies on noncompetes, especially as a growing number of physicians are employed by hospitals and other corporations. The agency estimates the rule will lower health care costs by $194 billion over the next decade, while freeing up physicians to more easily move between employers.

Unfortunately, the FTC rule does not apply to non-profit hospitals that have contracts with physicians. While the rule supports the critical principle that physicians must retain independence, free from the influence of corporate employers, to protect the quality of patient care and the practice of medicine, excluding non-profit entitles significantly limits its otherwise positive impact.

CMA looks forward to the implementation of the federal noncompete ban, which will help thousands of physicians and patients across the nation, just as California’s ban has successfully protected patient access to high quality medical care.