Does your long-term care facility have restrictive covenants in place with any of your employees? Do you know which employees have them or what they say? These are still important questions even after a federal District Court struck down the Federal Trade Commission’s final noncompete rule, which was set to go into effect Sept. 4 of this year. It would have banned noncompetition agreements for virtually all U.S. workers.  

The FTC final noncompete rule

The FTC voted in April 2024 to approve the final rule, which was intended to: prohibit all noncompete agreements from being signed with all workers beginning Sept. 4, 2024; invalidate and prohibit enforcement of any existing noncompete agreements with all workers except certain senior executives (those in policy-making positions making at least $151,164 annually); and require employers to send a clear and conspicuous notice to affected workers by Sept. 4, that informed workers that their existing noncompete clauses would not and legally could not be enforced against them by their employer.  

Covered noncompete clauses include any that prohibit, penalize or function to prevent a worker from seeking or taking employment with another employer or operating a business after the end of the worker’s current employment. 

The FTC final rule does not ban non-solicitation or confidentiality clauses or noncompete requirements during employment and does not apply to noncompete clauses entered into as a result of a sale of or ownership interest in a business entity. 

It also does not apply to people or employers outside of the FTC’s jurisdiction, such as state agencies or certain nonprofit entities.  

Numerous employers and trade associations took issue with what was perceived by many business groups to be the overbreadth of the FTC ban. Lawsuits were quickly filed by parties challenging the ban.  

On Aug. 20, 2024, in the Ryan v. Federal Trade Commission lawsuit, the U.S. District Court for the Northern District of Texas entered an order granting the parties’ requests for a nationwide injunction that bars the FTC from enforcing the final noncompete rule, as to all workers and against any employer. The court found that the FTC exceeded its statutory authority and that the final rule was arbitrary and capricious.  

It is likely that the FTC will appeal the Ryan decision, but the final noncompete rule will not take effect unless the FTC wins such appeal, and it ultimately may involve review by the U.S. Supreme Court. If the FTC chooses to issue alternative guidance, doing so will start the regulatory rule-issuing process over from the start. Either way, it will be many months until new noncompete requirements on the federal level may be implemented.    

So what does this mean for long-term care facilities now?  

With the nationwide injunctive order in place, no employers are required to notify any workers that any existing noncompete agreement is unenforceable or to take any steps to amend such agreements to otherwise confirm with the non-invalidated final rule. Stay tuned for further developments.  

However, many states have applicable state laws that govern an employer’s noncompete, non-solicit and confidentiality agreements with workers. In fact, more than 35 states have legislative restrictions on an employer’s use of post-employment restrictions in employee agreements, with four states having total bans on their use.  

Several states, such as California, Minnesota and Illinois, have passed significant new restrictions in the last two years.  Employers still must comply with any applicable requirements for their state, which may include where the workers reside or perform work, in order to be able to enforce them.  

Often, employers may be using old forms or templates that have not been reviewed with legal counsel to comply with recent developments. In other cases, employees with noncompete clauses no longer satisfy recently imposed or increased minimum compensation requirements for enforcement requirements in your state.  

With all the recent attention on these issues, it is important that facilities thoughtfully consider their approach for use and enforcement of noncompete and non-solicit provisions with employees. 

Take a careful audit of employees with existing agreements and consider what positions may warrant entering into restrictive agreements with new employees. Work with legal counsel to evaluate existing agreements, and to review forms or templates for required updates based on recent legal developments that apply to your facility’s operations.  

Taking the time to do so now may help avoid having an unenforceable agreement with a key departing employee in the future.  

Jennifer Long is a Special Counsel in the Chicago Office of the Employment, Labor, Benefits and Immigration Practice Group at Duane Morris LLP, [email protected].  

The opinions expressed in McKnight’s Long-Term Care News guest submissions are the author’s and are not necessarily those of McKnight’s Long-Term Care News or its editors.

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