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Non-compete clauses are regularly used in employment agreements to restrict the geographical scope of where an employee can work after termination with their employer for a particular period of time. There have been many changes over these clauses and some states have abolished them from these agreements already, including California and Massachusetts. Even New York had a bill to make these clauses unenforceable, but it was not passed by the Governor at the end of 2023. 

Non-compete clauses protect the practice from a prior employee working or opening up their own practice in close proximity to the Practice. Basically, it would prevent direct competition and to prevent patients from leaving the Practice and follow the employee because of proximity. Keep in mind that patients are always allowed to choose their provider, but the non-competes provide a security to practices to maintain their patient base.  

New York Courts have a four-prong test to determine whether the non-compete was enforceable and each clause was reviewed on a case-by-case basis.  The questions Courts would consider are the following:  

  1. Is there a legitimate business interest to have the non-compete? This is the easiest prong for a business to pass. 
  2. Does the clause impose an undue hardship on the employee? Meaning, is the employee able to earn a living if the clause is enforced.   
  3. Does the clause harm the public?
  4. Is the clause reasonable in time period and geographic scope?

However, despite the rationale and benefit behind the non-competes, the Federal Trade Commission (FTC) has published in the Federal Register a rule that places a comprehensive ban on all new non-compete clauses with all employees/workers, including senior executives. All existing non-compete clauses will now be considered null and void, unless you are a senior executive

Senior executives are defined by the FTC as workers earning more than $151,000.00 a year and who are in a “policy-making position”. If you or someone you employ falls in this category, then any existing non-compete clause will still apply. But keep in mind that for all new agreements for senior executives and all other employees, non-compete clause will no longer be enforceable, regardless of their title, position and duties. 

Now you may be asking “When does all of this take place?” The FTC rule becomes effective September 4, 2024. A common question that has been coming up in discussion is “what happens to employees who have been terminated or who have left the practice and still have time left on their non-compete restriction?” Pursuant to  the FTC rule, as of September 4th, even these non-competes against former employees will no longer be enforceable and will be considered null and void. 

To no surprise, there are already lawsuits filed questioning the constitutionality of this rule and it is unclear how the courts will rule and whether the FTC rule will be enforced in the future.  However, it is important to note that as of right now, it is important for everyone, owners and employees alike, to understand that as of September 4, 2024, non-compete clauses will not be enforceable anywhere in the United States. All businesses, regardless of industry and specialty, will be required to post a notice of the FTC rule for all employees prior to September 4th date. 

With this rule in effect, there will be many concerns on behalf of the practices and their respective owners on how to protect their businesses in the future. To understand more about the FTC rule and the potential impact it may have on your business, speak with your counsel for information and guidance.