As part of “a whole-of-government effort to promote competition in the American economy,” President Biden’s July 9 Executive Order on Promoting Competition in the American Economy encourages the Federal Trade Commission to ban or limit non-compete agreements. In doing so, President Biden continues — and potentially accelerates — what to date has been a piecemeal effort conducted almost exclusively at the state level to limit, and in some cases prohibit, the use of non-competes, particularly for low-wage workers.
On October 20, 2016, the United States Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) issued “Antitrust Guidance for Human Resource Professionals” regarding antitrust prohibitions of agreements that restrain competition for employees’ services. (Click the following links for a copy of this guidance, and the accompanying press release.) The guidance addresses business-to-business agreements regarding employee non-hiring and recruitment, and is intended to both remind HR professionals that these agencies have challenged such types of understandings over the past several years, and warn employers that the DOJ, in particular, intends to begin prosecuting at least some employers criminally in the months and years ahead.
The overall message is that employees are entitled to all of the benefits of competition for their services and that the FTC and DOJ are now increasing scrutiny of all practices that may impede those benefits. Some examples are formal or informal “wage-fixing,” “anti-poaching” and exchanges of compensation information generally. Over the course of the past several years, both agencies have challenged some of these practices in a variety of industries, particularly within the high-tech and healthcare sectors, as “per se” antitrust violations. These government actions have been followed by private class actions seeking treble damages, which in some cases, have resulted in judgments for hundreds of millions of dollars. As noted above, the DOJ now intends to treat at least some of these practices as felony criminal violations of the antitrust laws.
On November 30, 2012, the Federal Trade Commission voted 5-0 to approve the settlement of a complaint it filed against Renown Health on August 3, 2012. A settlement was promptly reached between the FTC and Renown Health avoiding the unwinding of two acquisitions made by Renown Health of two independent local cardiology groups.
The complaint alleged that Renown Health’s acquisition of competitor cardiology groups in Reno, Nevada, Sierra Nevada Cardiology Associates, Inc. (“NCA”) and Reno Heart Physicians, Inc. (“RHP”), and the employment of the 32 physicians employed by these entities, “is likely to lead to anticompetitive effects including increased prices and reduced non-price competition.” The acquisitions resulted in Renown Health employing approximately 97% of the cardiologists serving private patients in the Reno area. The FTC complaint focused on the fact that all of the employed physicians were subject to employment agreements containing noncompetition and non-solicitation provisions prohibiting them from practicing medicine or soliciting former patients for two years in the Reno area after termination of their employment. As a result of the noncompetition and non-solicitation agreements, competition for cardiology services would have to come from without, which the complaint alleged to be unlikely because of certain barriers to market entry. The State of Nevada, through its attorney general, worked with the FTC in investigating and resolving the matter. The Nevada AG filed a similar complaint and entered into an agreement with Renown Health similar to the FTC consent decree.
The parties reached a settlement this fall through an agreed consent decree that would avoid having to unravel the mergers. The FTC has now approved the consent decree under which Renown Health released up to ten cardiologists previously employed by NCA or RHP from their noncompetition and non-solicitation restrictions.
This result signals a cautionary note for those hospitals and health care systems with an overly large market share in a geographical market who seek to further expand their employed physicians in a given practice area. In this case, the 88% market share for the cardiologists was a daunting statistic for Renown Health to overcome. Going forward, this is just one more potential road block that health care providers must consider before acquiring additional physician practices and increasing its employed physician roles.