Noncompete Ban Could Make ‘No-Poach’ Agreements Harder to Enforce: Polsinelli
McKnights Home Care / By Adam Healy
The Federal Trade Commission’s ban on noncompete agreements threatens to undermine common tactics used by home care agencies to prevent client poaching, experts at law firm Polsinelli warned during a recent webinar.
The rule does not explicitly forbid documents such as nondisclosure agreements (NDAs) and no-poach agreements, which are often used by home care and hospice providers. However, FTC included a “functional equivalence” test to measure whether such provisions would in practice act as a noncompete, Polsinelli’s attorneys noted. As a result, these kinds of contractual provisions could be undone if they are applied too broadly.
“If you have an NDA that’s so broad that it would be seen as the functional equivalent of a non compete, you may have trouble,” Polsinelli attorney Scott Gilbert said during the webinar Tuesday. “If you have a super-broad NDA, it may not be enforceable.”
Furthermore, the FTC could throw out any contract provision that applies to workers after their employment has ended, explained Polsinelli shareholder Emma Scheuring. This includes no-poach clauses that prohibit caregivers from being hired directly by their patients after their employment by a home care agency ends.
“If you’re asking your caregivers not to go work for their clients — your clients — after they stop working for you, that’s a noncompete under the rule,” Scheuring said. “Anything that says, ‘Employee, once you leave working for me, you can’t go work for XYZ,’ that’s going to be problematic under the rule.”
Other types of contractual obligations, including direct-hire clauses, were not addressed directly in the FTC’s rulemaking. But experts have previously stated that the use of these kinds of provisions may also be limited once the rule goes into effect.
Broad application
Against many providers’ wishes, FTC did not grant a blanket exemption for healthcare businesses. This means that for-profit home care, home health and hospice providers are subject to FTC’s ban, Polsinelli’s experts said.
And while the FTC generally does not have jurisdiction over nonprofit entities, the agency indicated in the rule’s comment section that it intends to look more closely at whether some businesses actually qualify as nonprofits. If “presented with an appropriate test case,” the agency may try to assert its jurisdiction on a nonprofit engaged in “relatively commercial activities,” according to law firm JD Supra.
Meanwhile, the Internal Revenue Service also recently suggested that it would be investigating whether some entities fit their nonprofit status, according to Gilbert.
“It wouldn’t surprise us at all to see collaboration between the FTC and the IRS in evaluating [whether a business is truly not-for-profit],” Gilbert said…
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