FTC bans noncompete agreements in the veterinary profession

georgerudy/stock.adobe.com

This article was updated on May 7, 2024.

On April 23, 2024, the Federal Trade Commission (FTC) shared its final rule to ban noncompete agreements nationwide. This final rule will protect employees looking to change jobs, increase innovation, and foster the creation of new businesses, including those in the veterinary profession.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8500 new startups that would be created a year once noncompetes are banned,” explained Lina M. Khan, FTC Chair, in an organizational release.¹ “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.”

FTC has estimated that this ban will lead to an increase on new business formation by 2.7%. It is also expected to create higher wages for workers, with each working making an additional $524 a year as well as lower health care costs by almost $194 billion in the next 10 years.¹

According to Karen Whala, DVM, MPH, DACVPM, cofounder of CodaPet, noncompete agreements have long been a common practice in veterinary medicine. "These agreements typically restrict employee veterinarians from working for a competitor or starting their own competing business for a specified period after leaving their current employer. For veterinary professionals, these restrictions often limited their ability to seek new job opportunities or advance their careers without facing legal consequences,” Whala told dvm360 exclusively.

In October 2023, the Destination Pet network of veterinary care and pet service eliminated noncompete clauses from their employee contracts. “Destination Pet believes in creating a positive work environment where veterinarians can thrive. They deserve to practice where they want and where the animals need them the most. They do not need added restrictions when looking for a job that supports their passions,” the company stated in a release.²

According to the FTC, in an estimated 30 million workers in the United States, almost 1 in 5 Americans are subject to a noncompete agreement.¹ The agency claims noncompete agreements can keep people at companies or in positions they may no longer align with or want to leave to pursue other options available to them. Those who leave a job with a noncompete can also be at risk to bearing harms and costs such as being forced to relocate, defend against expensive litigation, or leave the workforce they are in completely.

The new FTC rule will make existing noncompete agreements unenforceable for a vast majority of workers, including those in veterinary roles, after the effective date of the rule. For senior executives, current noncompete agreements can remain active under the FTC final rule but employers are banned from entering in or enforcing any new noncompete agreements, regardless of rank in the company.¹

The FTC originally issued a proposed rule in January 2023, which was subject to a public comment period of 90 days.³ During that time, the FTC received 26,000 comments on the proposed rule, with 25,000 in support of the proposed noncompete ban. The FTC then went through the comments and carefully reviewed them to make changes to the proposed rule based on the feedback it received. The FTC’s final rule stated that it determined noncompete agreements to be an unfair method of competition and violates Section 5 of the FTC Act, which prohibits “unfair or deceptive” acts or practice in or affecting commerce.⁴

“In an environment of increasingly common corporate buyouts, the FTC ruling could potentially lead to improved working conditions for veterinary professionals. Noncompete agreements can create power imbalances between employers and employees, with veterinarians feeling trapped in unfavorable work environments due to restrictive contractual obligations,” Whala continued.

Some businesses, including Destination Pet,² are turning to or continuing to use solicitation provisions rather than relying on noncompete agreements. According to Lance M Roasa, DVM, JD, MS, an American Veterinary Medicine Law Association board member, solicitation provisions may offer the best protection to businesses. An example of this type of provision is not allowing an employee to solicit clients met through a practice for a period of 2 years after leaving that hospital or clinic. In a 2022 interview with the American Veterinary Medical Association, Roasa said that “both sides have rights” and there is a line between what is reasonable or not.⁵

“By eliminating noncompetes, veterinary professionals may feel more empowered to negotiate for better working conditions, such as flexible schedules, improved benefits packages, and enhanced professional development opportunities. On the other hand, employers may be incentivized to create more attractive workplace environments to attract and retain top talent in a more competitive job market,” Whala concluded.

This regulation will not be effective until 120 days after it is published in the Federal Register.

References

1. FTC Announces Rule Banning Noncompetes. News release. Federal Trade Commission. April 23, 2024. Accessed April 25, 2024. https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes
2. Burke J. Veterinary network eliminated noncompete clauses. September 21, 2023. Accessed April 25, 2024. https://www.dvm360.com/view/veterinary-network-eliminates-non-compete-clauses
3. FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition. News release. Federal Trade Commission. January 5, 2023. Accessed April 25, 2024. https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition
4. Federal Trade Commission. A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority. Federal Trade Commission. Published June 7, 2013. https://www.ftc.gov/about-ftc/mission/enforcement-authority
5. Burns K. The shifting landscape of noncompete agreements. American Veterinary Medical Association. January 21, 2022. Accessed April 25, 2024. https://www.avma.org/news/shifting-landscape-noncompete-agreements