New Guidance for Employee Agreements Could Change the Landscape of the Healthcare Industry

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Two federal agencies, the Federal Trade Commission (“FTC”) and the National Labor Relations Board (“NLRB”), are reshaping the labor industry with guidance aimed at protecting and expanding employee rights. On January 5, 2023, the FTC issued a proposed rule that would ban non-compete agreements, and in turn, significantly broaden worker mobility within the healthcare labor pool.[1] The following month, on February 21, 2023, the NLRB rendered a decision narrowing the scope of non-disparagement and confidentiality provisions in employment agreements, making it a Section 7 violation of the National Labor Relations Act (“NLRA”) to proffer an agreement that prohibits non-supervisory employees from speaking in a disparaging manner about their employer, or disclosing information about the workplace.[2] While this new guidance will apply to, and affect, every employment industry that utilizes these types of agreements, healthcare employers must remain particularly attentive as these new rules could potentially cause significant change to the healthcare labor market.

FTC Proposed Ban on Non-Competes:

1. The Proposed Rule

In an effort to reduce competitive practices and prevent employers from restricting the job market through the use of non-competition agreements, the FTC has issued a proposed rule to prohibit use of these agreements altogether. This rule, which has been supported by the Biden Administration pursuant to President Biden’s Executive Order on Promoting Competition in the American Economy, is a direct effort by the FTC to establish a more free-flowing labor economy.

Under the proposed rule, the FTC considers it unfair competition for an employer to “enter into or attempt to enter into a non-compete clause with a worker; maintain a non-compete clause; or present to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.” (See Section 910.2(a)). Thus, the use of contractual language that would in any way inhibit a worker’s employment mobility would be considered a violation of this rule. 

In addition, the proposed rule also includes a rescission requirement under Section 910.2(b)(1), which provides that “an employer that entered into a non-compete clause with a worker prior to the compliance date must rescind the non-compete clause no later than the compliance date.” To do so, Section 910.2(b)(2) requires that an employer provide notice to the employee of the rescission in an individualized communication via a digital format within 45 days of rescinding the clause. Employers will be required to rescind all non-compete agreements issued to both current and former workers.

Furthermore, for employers in states with existing non-compete laws, Section 910.4 would purport to preempt any state law that is inconsistent with the rule.

2. To Whom Would the New Rule Apply?

Pursuant to Section 910.1(c) of the proposed rule, an employer would be defined as any natural person, partnership, corporation, association, or other legal entity, including any person acting under color or authority of state law, that hires or contracts with a worker to work for the person.[3] However, the rule does note that some entities are exempt from coverage under the FTC Act, such as certain banks, credit unions, air carriers, as well as any entity that is not organized to carry on business for its own profit or that of its members. Id. at 111-112. Thus, generally, any nonprofit organization would be exempt from the rule. The rule would also not apply to non-compete agreements entered into for the sale-of-businesses. Id. at 106.

With respect to the term “worker,” the rule would apply to any paid or unpaid person who works for an employer. Id. at 212.This would include, without limitation, employees, individuals classified as independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide a service to a client or customer. Id.

3. Implications for the Health Care Industry

For healthcare employers, the rule could significantly impact the development of physician and executive-level contracts. Should the legislation go into effect as it is currently drafted, physicians and hospital executives would have the ability to leave one healthcare employer and immediately gain employment with the next, even if that means working at a nearby healthcare facility. This rule would lead to a decisive shift in the healthcare industry, increasing the employee’s power with respect to pay and work conditions. Notably, however, there is an argument that healthcare employers classified as nonprofit organizations would be exempt from the new rule.  

4. When Will the Rule Become Effective, If at All?

The FTC’s comment period for the rule was extended until April 19, 2023.[4] It is uncertain when the rule will be officially published as it is likely to sustain significant legal challenge; however, if approved, employers will have 180 days from the date of publication to comply with the new rule. Even then, litigation is a certainty.

NLRB on Non-Disparagement and Confidentiality Clauses: 

1. The McLaren Macomb Decision

The NLRB’s recent decision in the case, McLaren Macomb, now places serious limitations on inclusion of confidentiality and non-disparagement provisions in severance and settlement agreements.[5]

The Board, in McLaren, assessed whether the employer violated Section 8(a)(1) of the NLRA by issuing severance agreements with non-disparagement and confidentiality provisions to a group of permanently furloughed employees. Ultimately, the Board found the non-disparagement and confidentiality provisions contained broad proscriptions on the employees’ ability to exercise their rights under Section 7 of the NLRA. Specifically, with respect to the non-disparagement clause, the Board ruled that any contractual language that prevents an employee from making statements that could disparage or cause harm to the employer, on its face, interferes with the employee’s Section 7 rights. Id. at 8. The Board explained that employees have the right to critique their employer regarding any labor issue, dispute, or term and condition of employment. Id. The Board did, however, make an exception for those employee communications that are “so disloyal, reckless, or maliciously untrue as to lose the Act’s protection.” Id.

As to confidentiality agreements, the Board held that language which restricts the employee from disclosing the terms of the agreement to third persons is overbroad and infringes on the employee’s Section 7 rights. Id. The Board further explained that such provisions would likewise impair the right of the employee to speak with coworkers, unions, the Board, and others about their employment or other workplace issues. Id. at 9.

2. To Whom Does the Decision Apply?

The McLaren decision applies to both union and non-union employers. However, the restrictions on non-disparagement and confidentiality provisions only apply to those agreements presented to non-managerial employees protected under Section 7. The decision does not apply to managerial employees, such as supervisors. Section 2(11) of the NLRA provides a comprehensive definition of the term ‘supervisor.’

Additionally, on March 22, 2023, NLRB’s General Counsel, Jennifer Abruzzo, issued a memo stating that the McLaren decision is to be retroactively applied.[6] Thus, the implications of the decision apply to both current and former employees. Id.

Key Takeaways for Health Care Employers:

In light of this new legislation, healthcare employers should review all of their standard severance and settlement agreements and update any language that may no longer comply with this new guidance. Although there is no requirement to remove non-competition provisions or rescind non-competition agreements at the moment, employers should still consider the following:

• Begin assessing which employees are subject to non-competition agreements;
• Ensure policies and procedures are in place to protect trade secrets.

With regard to the NLRB decision, which is currently in effect, healthcare employers should examine any non-disparagement and confidentiality provisions in their standard agreements to ensure the language is not overbroad and does not infringe on an employee’s Section 7 rights. Health Care employers should also consider the following:

• Include express language in the agreement that disclaims any infringement upon the employee’s Section 7 rights, if applicable;
• Tailor non-disparagement language to include only those communications that are “so disloyal, reckless, or maliciously untrue as to lose the Act’s protection.”

Maynard Nexsen’s Health Care Team stands ready to assist with the drafting or revising of severance and settlement agreements, as well as all other needs pertaining to compliance with the new guidance.

_{[1] FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition | Federal Trade Commission}

_{[2] Board Rules that Employers May Not Offer Severance Agreements Requiring Employees to Broadly Waive Labor Law Rights | National Labor Relations Board (nlrb.gov)}

_{[3] Non-compete Clause NPRM (ftc.gov)}

_{[4] FTC Extends Public Comment Period on Its Proposed Rule to Ban Noncompete Clauses Until April 19 | Federal Trade Commission}

_{[5] McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023).}

_{[6] NLRB General Counsel Issues Memo with Guidance to Regions on Severance Agreements | National Labor Relations Board}