In a landmark decision last April, the Federal Trade Commission (FTC) announced a proposal to ban noncompete clauses in employment contracts across the United States.1 This move is poised to significantly alter the employment landscape, particularly in specialized fields, such as veterinary medicine.
The ruling aims to enhance worker mobility, promote fair competition, and spur innovation, but its impact on the veterinary industry warrants a closer examination.
The decision
The FTC’s ruling2 targets non-compete agreements, which restrict employees from working for competitors or starting similar businesses within a certain geographic area and timeframe after leaving a job. The agency argues these clauses stifle competition, limit workers’ ability to negotiate better terms, and reduce overall economic dynamism. By banning noncompetes, the FTC aims to empower employees to seek better opportunities without fear of legal repercussions, fostering a more competitive job market.
Impact on the industry
The veterinary industry, like many other healthcare sectors, has traditionally relied on non-compete clauses to retain talent and protect business interests. Veterinary hospitals invest considerable resources in training staff and building client relationships, which noncompetes help safeguard. The FTC’s ban, however, introduces both challenges and opportunities for veterinary professionals and businesses.
1) Enhancing mobility for veterinarians. One of the most immediate effects of the FTC’s decision will be increased job mobility for veterinarians. Without the constraint of non-compete clauses, veterinarians can more freely move between hospitals, pursue better job offers, and potentially start or buy their own clinics. This could lead to a more dynamic and competitive job market, where hospitals must compete on the merits of their working conditions, salaries, and benefits to attract and retain top talent.
2) Encouraging entrepreneurship. The ruling could also foster a wave of entrepreneurship within the veterinary field. Veterinarians who were previously hesitant to leave established hospitals due to noncompete clauses may now feel more confident in starting or buying their own clinics. This could increase the number of veterinary hospitals, enhancing access to veterinary care for pet owners.
3) Creating a potential pay increase. Associates, long handcuffed by noncompete contracts limiting their ability to move, could use their new portability to increase their pay. While we saw an increase in pay for veterinarians post-COVID as demand for services increased,3 veterinarians, especially associates, still lag other healthcare professionals regarding their overall compensation.
4) Legal and contractual adjustments. With the ban on noncompetes, veterinary hospitals may turn to other legal instruments to protect their interests. Non-solicitation agreements, which prevent former employees from poaching clients or staff; and confidentiality agreements, which protect sensitive business information, might become more prevalent along with the penalties for infractions becoming more severe. These alternatives can offer some level of protection without imposing the broad restrictions associated with noncompetes.
5) Effects on the future sales of veterinary hospitals. The FTC’s ruling may also impact the sales and valuation of veterinary hospitals, especially those selling to corporate aggregators. Traditionally, the value of a hospital is partly based on its ability to retain key personnel and its client base, both of which are partly secured through contracts that include noncompete agreements. Without these clauses, buyers might perceive an increased risk in acquiring hospitals, potentially lowering their market value.
In the private sale market, little will change for those hospitals that are single owner/operator as there was an exception in the event of a sale of the business. Any partner in the business, at any level, can have a noncompete imposed on them post sale. This helps protect the new owner’s investment and does not allow a seller to go across the street and open a new hospital or work as an associate within the miles surrounding the subject practice that was sold as detailed in the post-sale noncompete agreement. This carve-out was part of the FTC decision to not stifle the sale of businesses and continue to foster a robust transition of businesses market.
Is this just an exercise?
The result of all of this may end up being no changes. While the FTC governs employment regulations, it does not live and operate in a bubble. Many industries, not just healthcare, utilize noncompetes as a tool for their employment practices.
The U.S. Chamber of Commerce even questioned whether the FTC had the legal right and jurisdiction to enact such a ruling,4 and had filed a lawsuit in the eastern district of Texas on April 25.5 The FTC was not unanimous in their ruling. The resolution passed with a 3-2 majority. Further discussion, lawsuits, and ultimately legislative intervention may still happen to see this resolution through to implementation.
Today’s market
Veterinarians and prominent industry leaders have been pushing back against noncompetes, especially for associates, vehemently for several years now. Some large corporate owners have already adopted a no noncompete policy as part of their employment agreements for associates with many more doing so every day. Many independent owners, due to the overwhelming demand and shortage of associate veterinarians, have long stopped requiring noncompetes in their employment contracts as a tool to attract talent. The veterinary industry is demonstrating they are ahead of the curve here and is slowly moving to noncompetes being a thing of the past without legislative intervention.
What’s next?
Watching the news on the FTC ruling, the pending lawsuits, and the potential legislative intervention could help prepare your business for a shift in the future.
Connect with an employment lawyer to be ready to adjust if and when this ruling is final. We are already feeling pressure for noncompetes to go away in veterinary medicine, so planning to operate in what the likely future state of employment contracts will be is a sound plan.
Bill Murray is the founder and CEO of Wicklow Healthcare Advisory. Prior to founding Wicklow, Murray spent more than twenty years at Bank of America, most recently as senior vice president of the veterinary lending division. Murray started Wicklow after seeing a gap in the current model, where many independent practice owners were not getting the attention and specific expertise needed to help them grow, scale, and exit their businesses. he opinions and conclusions of the author do not necessarily reflect the views of Veterinary Practice News.
References
- https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes
- chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:/www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf
- https://www.avma.org/news/veterinary-starting-salaries-rise-2023-educational-debt-holds-steady
- https://www.whitecase.com/insight-tool/white-case-global-non-compete-resource-center-ncrc#usc-ftc-rule
- https://www.uschamber.com/cases/antitrust-and-competition-law/chamber-v-ftc