In late April 2024, the Federal Trade Commission (FTC) issued a final rule banning most non-compete clauses for workers in the United States—which will apply to both clinical and non-clinical employees in the veterinary industry. The decision is groundbreaking in its scope and changes the dynamic not only for veterinary employees but also for veterinarians and practice owners. If you’re thinking about selling your practice or pursuing a partnership, the new FTC non-compete rule is a topic you need to know about.
Today we’re detailing the new ruling from the FTC and what it means for practice owners, and the veterinarians and staff who work at practices across the country. Let’s dive in.
The Basics of the FTC Non-Compete Rule
It’s no secret that corporate ownership/partnerships of veterinary practices have ballooned in recent years. Non-compete clauses and/or restrictive covenants are a common way to protect existing or newly acquired practices. This landscape, naturally, will change significantly with the new ruling.
In short, here is what the new FTC non-compete rule entails:
- The FTC determined that non-competes are an unfair method of competition and violate Section 5 of the Federal Trade Commission Act
- Employers cannot enter into new non-competes with workers, or enforce existing non-competes with workers—other than senior executives (workers earning more than $151,164 who are in a “policy-making position”)
- The final rule includes an exception that allows non-competes between the seller and buyer of a business
- The new rule will apply to every state in the U.S., creating a common framework across the country for non-compete clauses and some level of uniformity
On its face, the decision is a win for employees but raises substantial concerns for employers. There’s no doubt it will improve worker mobility, but the impact of the ruling will require some risk assessment on whether it applies to other aspects or workers with less clearly defined roles.
Why Did the FTC Issue the Non-Compete Ban?
The FTC made it clear that the decision was made to improve conditions for workers who may be restricted today from taking a better job, negotiating better pay, or starting their own business.
The FTC believes non-competes restrict the freedom of workers, suppress wages, and stifle new businesses and new ideas. By eliminating non-competes for the vast majority of workers, the FTC estimated a host of benefits including:
- Worker earnings increasing by $400-$80 billion over the next decade
- Creating more than 8,500 new businesses each year
- Increased innovation, with 17,000-29,000 more patents each year
What Could This Mean for My Practice?
It should be noted that every case and circumstance should be evaluated on its own merits, according to the specific facts of that particular situation. We’ll be offering general guidelines for how the new FTC non-compete rule applies to a typical practice. It’s also important to note that while this is a big change, there remains a lot of nuance. For instance, non-compete bans have already been in place at the state level—California is a good example—and the new ruling will merely create a more common framework across the country.
Non-compete clauses can be included in different types of agreements, and their scope and enforceability may vary depending on the agreement type. Here are the key differences between non-compete clauses in the most common agreements and how they might apply in veterinary practice.
Purchase Agreements
In the context of purchasing a business, non-compete clauses are typically more stringent and enforceable. The seller of the business agrees not to compete with the buyer for a specified period within a defined geographic area. The new FTC non-compete rule includes an exemption for these types of clauses. This protects the buyer’s investment by preventing the seller from starting a competing business and leveraging their knowledge and relationships.
Operating Agreements
Operating agreements govern the operations and relationships between owners/partners of a business entity partnership. Non-compete clauses in these agreements restrict owners/partners from engaging in competing activities during their involvement with the entity and for some period after leaving. This protects the entity’s interests and prevents owners from directly competing against the business they have an ownership stake in.
Employment Agreements
Non-compete clauses in employment agreements restrict employees from working for a competitor or starting a competing business for a reasonable period after leaving their employer, usually within a specific geographic area and scope of business activities. Generally, these clauses must be reasonable in duration, geographic scope, and the types of activities restricted to protect the employer’s legitimate business interests. However, these types of clauses were specifically targeted by the FTC’s ruling.
Navigate the New Normal
The new FTC non-compete rule has likely opened a whole new set of questions for practice owners who may be thinking of exploring a partnership opportunity. At VetEvolve, we take a unique approach to practice partnerships—we focus on putting people first. We work diligently to make sure practice owners are able to transition on their own terms and help them manage the many questions they wrestle with during the process.
We can help you iron out the details associated with non-compete clauses and how they work moving forward. We’re here to help.
Interested in joining our team, or exploring a practice partnership opportunity? Connect with our team today.
