A Lesser Known Executive Order on Noncompetes and Healthcare Licensing

A Lesser Known Executive Order on Noncompetes and Healthcare Licensing

Although most recent attention has been on the September 9, 2021 Executive Order by President Biden mandating COVID19 vaccines by employers, a lesser-known Executive Order from two months earlier is also important for those working in health and wellness fields. The July 9, 2021 Executive Order deals with market competition. Two areas of specific interest to health and wellness professionals relate to noncompete agreements and occupational licensing restrictions.

Noncompete Agreements

The Executive Order requires the Chair of the Federal Trade Commission (FTC) to look at making rules that would make it more difficult for employers to prevent employees with competing with the employer when the employee leaves the company. Specifically the Executive Order states the following:

To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.

As many health and wellness professionals know, noncompete agreements can hamper a professional’s ability to start their own business. Noncompete clauses in employment agreements often prohibit employees of health and wellness organizations from either working for a competing organization or starting their own health/wellness clinic. These clauses may also prohibit contacting patients or clients that the health or wellness professional had seen when they worked for the previous employer. For clients and patients, noncompete clauses can cause confusion as to who can and will continue their care after the health or wellness professional leaves employment of the organization.

On the flip side, noncompete clauses can help employers protect business assets, such as customer goodwill, intellectual property and business information that often takes years and a lot of financial investment to build.

The Center for Health and Wellness Law, LLC has helped clients on both sides of the noncompete issue and we understand both the challenges and benefits noncompete agreements create. But they can be abused and extend beyond their useful purpose. Thus, per the Executive Order, it is important to ensure that noncompete agreements do not “unduly limit workers’ ability to change jobs” or “unfairly limit worker mobility.”

Occupational Licensing Restrictions

The second item of interest included in President Biden’s July 9, 2021 Executive Order relates to “unfair occupational licensing restrictions.”  The Executive Order does not provide much detail about this provision except the following:

And, while many occupational licenses are critical to increasing wages for workers and especially workers of color, some overly restrictive occupational licensing requirements can impede workers’ ability to find jobs and to move between states.

So, the Biden Administration seems to be concerned with the inability of some licensed professionals being able to practice their profession across state lines. Licensed professionals often face a lot of hurdles to see patients in different states because professional licenses do not often transfer to other states. Each state has its own licensing requirements and it is not often possible or easy to get reciprocity to practice a licensed profession in a new state. As a result, licensed professionals must be careful not to engage in the unlicensed practice of their profession when seeing patients or clients outside their home state.

The Executive Order asks the FTC Chair to look at making federal rules to improve the ability of licensed professionals to move across state lines and still practice their profession. Such rulemaking would be most welcome for those licensed healthcare practitioners who are taking advantage of telehealth technology to expand their practice beyond their home state’s borders. However, a question remains about how effective can this Executive Order be in changing the legal landscape for health and wellness professionals?

How Effective are Presidential Executive Orders?

To determine how much power this Executive Order will have on noncompete clauses and interstate licensing, one must first understand the US Constitution and the hierarchy of law. The US Constitution gives the President power under Article II. However, that power is limited. Basically, if the power is not given in the Constitution, the power isn’t there. The President can also get powers through the US Congress. So if Congress passes a law giving the President or Executive Branch of the US government certain powers, the President can exercise that power.

With this Executive Order about noncompete clauses and occupational licensing, the President is relying on his powers under the Federal Trade Commission Act (FTCA). As President, he is the “CEO” of the FTC. The FTC enforces compliance with the FTCA. According to the FTC, the FTC “protects consumers by stopping unfair, deceptive or fraudulent practices in the marketplace.” It conducts investigations, sues companies and people that violate the law, and develops rules to ensure a vibrant marketplace. Congress, which like the President also has limited powers, was able to pass the FTCA under the Constitution’s “commerce clause” power. That power gives the federal government power to regulate commerce between the states. See e.g., https://www.law.georgetown.edu/salpal/can-president-trump-countermand-state-and-local-closing-and-stay-at-home-orders-a-constitutional-overview/.

Thus, the Executive Order, and any rules from the FTC that follow, are based on Constitutional authority of the federal government to regulate business among the different states. That is why the Executive Order emphasizes its purpose as helping employees’ mobility by restricting noncompetes and occupational licensure laws.

The trouble is that the individual states regulate professional licenses and employers registered within their state. As noted by one resource, States exercise plenary police powers to protect public health and safety. Id. That is a broad grant of power by the Tenth Amendment to the US Constitution. State governments will still have the power to regulate professional licenses and enact laws involving noncompete provisions in employment contracts. As a result, there is likely to be conflict between state laws and any FTC rules involving noncompete and interstate licensing. Some states may use the FTC rules, once available, to align their state laws with the federal rules. But, it is very likely that other states will be in conflict with the federal rules. Conflicts may be resolved with the US Constitution’s “Supremacy Clause,” which states that federal law shall be “the supreme law of the land,” but that only applies to areas where the federal government is exercising its constitutionally enumerated and implied powers. Id.

As a result, the Supremacy Clause can only save the FTC rules governing noncompete clauses and interstate licensing issues if the federal authority is being properly exercised. Ultimately, whether the Executive Order translates into FTC rules that are clearly embedded within the federal commerce clause (or some other enumerated power) can only be determined after the language of the rules are released. If there is any doubt as to whether the FTC has stayed within its federal power under the FTCA, there will likely be a legal challenge to the new rules as exceeding the President’s Constitutional power. Until that happens, the best that health and wellness professionals and employers can do is to use the rules, once released, as support for decisions regarding noncompetes and interstate practice. However, health and wellness professionals and employers must keep in mind that state law will still play a role. As a result, it would be wise to enlist the help of your health and wellness attorneys to ensure you mitigate your risk as much as possible

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