The FTC's new proposal
The Federal Trade Commission (FTC) recently proposed a rule that could profoundly alter the landscape of noncompete agreements in the United States-and the way that dental practice owners employ clinicians-should it successfully pass. This new rule aims to ban noncompete clauses for all "workers" with few exceptions, which can include employees, independent contractors and owners. For dental practice owners, this sweeping change could significantly impact how they manage their practices, retain talent and protect their business interests.
Traditionally, noncompete agreements have been governed by state laws, resulting in a diverse legal landscape across the country. Some states, like California, already ban noncompete agreements (with limited exceptions for the sale of a business), while others generally permit them under specific conditions, such as reasonable geographic and time constraints. This patchwork approach requires businesses to tailor their noncompete strategies according to local laws and business needs.
The FTC's proposed rule, released on April 23, 2023, seeks to create a uniform standard by banning noncompete clauses nationwide. The rule defines "workers" broadly to include employees, independent contractors, and business owners. The primary exceptions to this blanket ban are noncompete agreements tied to the sale of a business as well as existing (not new) covenants for certain high-level executives who make policy decisions for the business and earn at least $151,000 annually.
For dental practice owners, the potential ban on noncompetes presents several challenges and opportunities:
Talent retention and recruitment
Noncompete agreements have traditionally been used to prevent employees from joining competitors under the guise of protecting trade secrets or starting rival practices nearby. Without the ability to enforce non-competes, dental practice owners will need to explore proactive, alternative methods to retain talent, such as offering competitive salaries, benefits and professional development opportunities.
Business continuity and stability
Noncompete clauses help ensure that departing employees do not immediately compete against their former employer, providing a buffer period for the business to adjust. Without this tool, dental practices may face increased competition from former employees, potentially destabilizing the business. Owners would be wise to incentivize clinicians to stay long term, through efforts such as ongoing education, salary increases and even partnership opportunities including equity stakes and profit-sharing arrangements.
Confidentiality and non-solicitation agreements
While noncompetes are under scrutiny, confidentiality and non-solicitation agreements remain enforceable. Dental practice owners should strengthen these agreements to protect sensitive information and prevent the poaching of patients and staff by former employees.
While this rule aims to enhance competition and worker mobility, it also presents challenges for practice owners accustomed to relying on noncompetes to protect their business interests. Although there is still uncertainty surrounding the implementation and legal challenges to the FTC's proposed rule, dental practice owners can take proactive steps to prepare for a potential noncompete-free environment. By proactively addressing these changes and exploring alternative strategies for talent retention and business protection, dental practice owners can navigate this new regulatory environment successfully.
