On April 23, 2024 the Federal Trade Commission (FTC) announced a new rule banning chiropractic noncompete agreements that will absolutely impact your chiropractic practice or your chiropractic associate job.

The quick summary is this:

  • Any existing chiropractic noncompetes are unenforceable after the effective date.
  • New chiropractors noncompete agreements are banned for most chiropractors, as of the effective date (see below for two major exceptions)
  • The effective date will be 120 days after publication in the Federal Register.

NONCOMPETE RATIONALE

The FTC ban on noncompetes has been in the works for over a year now and the commissioners cited health care specifically among their reasons for supporting the ban. While the target is certainly not aimed exclusively at chiropractic noncompete agreeenments, our profession may be one of the branches of healthcare that will be most impacted by this ruling as it will have the fewer exceptions compared to other healthcare disciplines.

FTC chair Lina Khan stated that the basic reason for the rule was that  “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned. The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

CONTROVERSY OVER THE BAN

Obviously, this proposed ban is not without its opponents and enforcing the rules will have its challenges.  For starters, noncompetes previously fell under state jurisdiction and the FTC is attempted to supercede all state laws with this ruling.

Lawsuits protesting the noncompete ban have already started popping up — the first of which was a Chamber of Commerce in Texas who sued over the matter. More legal battles will certainly be anticipated, but in the meantime, here are some ways this will and will not directly impact chiropractic noncompetes.

EXCEPTIONS FOR CHIROPRACTORS WHERE NON-COMPETES ARE ENFORCEABLE

There are exceptions that are built into the proposed rule whereby a noncompete could still be enforceable — but two of them are likely to only impact a small subset of chiropractors.

The first exception is aimed at “senior executives.” While we may not have many DC’s that claim that title, the compensation level for a senior executive is set by the rule at $151,164.   By this, existing noncompetes could remain in effect for an associate chiropractor or DC who is working for an entity where earn more than $151,164.  There is an additional clause in that exception that states the worker is in a “policy-making position” which is a bit more vague.  But it is likely that a chiropractor making more than this salary minimum could have a noncompete enforced against them.

Another potential exception (that applies to even fewer DCs) is that the FTC jurisdiction covers for-profit businesses, meaning the new rule would not apply to staff in nonprofit hospitals and health systems.  So, effectively a DC who is working in the hospital system could have a noncompete enforced against them.

THE BIGGEST EXCEPTION — CHIROPRACTIC PRACTICE SALES AND THE NONCOMPETE

The biggest exception in the FTC ruling on noncompetes will impact anyone looking to buy or sell a chiropractic practice.  The new ruling has a specific clause written that exempts non-compete clauses entered into with a seller of a business entity, so long as the sale involves the disposition of the person’s ownership interest in the business entity, or of all or substantially all of a business entity’s operating assets.   In other words, noncompetes are still enforceable in the context of a chiropractic practice sale.

Here’s an explanation in plain English of how this would work:

It is a common practice that when a buyer purchases a chiropractic business, they ask the seller to sign a noncompete that will restrict the seller’s ability to practice within a certain radius and for a defined timeframe.  The basic idea is that the buyer does not want to purchase a seller’s practice, then have the seller open up across the street and have all the patients follow them across the street – thus leaving the buyer with a shell of a practices and a bad purchase deal.

In our work assisting chiropractors to sell their practice, we routinely advise both parties that this type of noncompete is different than the employer-employee noncompete that’s seen in the typical associate relationship.  In short, when you buy or sell a chiropractic practice, the chiropractic noncompete that will accompany the purchase agreement will absolutely be enforceable.

That’s the way it is now in all 50 states and the FTC ruling will have no impact on the sale of a chiropractic business as the exception clause grants that chiropractic noncompete agreement will still be enforceable in connection with your chiropractic practice sale or purchase.

WHAT’S NEXT FOR CHIROPRACTIC NONCOMPETE AGREEMENTS?

The final rule’s expected effective date is September 4, 2024.

Unless one of the many lawsuits waged against the noncompete ban is successful, then chiropractors should anticipate that the noncompete ban will go through.

If you are a business owner who employs associates and utilize a non-compete, realize that your chiropractic noncompete may quickly become ineffective.  That doesn’t mean that all associates are going to fly the coop and leave, but it does mean that you may need to rethink your strategies for retaining your associates.

If you are an associate chiropractor, there are two big implications if the noncompete ban goes through.  You could soon be free of any barrier that would prevent you from opening up your own business nearby AND if you are in the market for a chiropractic practice to buy, you may no longer need to search outside the area of your noncompete.

Finally, if you are in the process of buying or selling a chiropractic practice, know that the ban will not impact your purchase or sale — even if the noncompete ban goes through, these will be the exception to the rule.

Stay tuned for more as this story develops, I plan to blog about it again!