Are Nonsolicitation Agreements Now Banned by the FTC?

Are Nonsolicitation Agreements Now Banned by the FTC?

Nonsolicitation agreements, which are often part of restrictive covenants or noncompete provisions in employment contracts, are very popular in the health and wellness marketplace. Health and wellness providers who are courageous enough to start their own practice do not want employees poaching their patients once those employees leave. In the law, we call provisions that prohibit departing employees from contacting former patients and luring them away from their former employer to their new employer or business “nonsolicitation agreements.” In other words, the departing employee agrees not to “solicit” or encourage their former patients to jump over to the employee’s new place of business. That new place of business might be a new clinic at which they are employed, or perhaps the employee decides to open their own practice and populate it with their former patients from the previous employer. 

In April 2024, the Federal Trade Commission (FTC) issued a final rule prohibiting noncompete agreements. But does the prohibition against noncompete clauses in contracts include nonsolicitation agreements?

That depends. According to the FTC, nonsolicitation agreements are NOT generally considered noncompete clauses because they do not explicitly prevent a worker from seeking or accepting other work or starting a business. at 78-79. However, if under the facts and circumstances the nonsolicitation agreement effectively prohibits the worker from seeking other work or starting their own business, then the nonsolicitation agreement may be deemed illegal by a court. According to the FTC final rule: 

However, non-solicitation agreements can satisfy the definition of non-compete clause in § 910.1 where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends. Whether a non-solicitation agreement—or a no-hire agreement or a no-business agreement, both of which were referenced by commenters, as discussed previously—meets this threshold is a fact-specific inquiry. The Commission further notes that—like all the restrictive employment agreements described in this Part III.D—non-solicitation agreements, no-hire, and no-business agreements are subject to section 5’s prohibition of unfair methods of competition, irrespective of whether they are covered by the final rule.

Id. This means that a nonsolicitation clause that in practice prevents a worker from starting their own health or wellness practice, the nonsolicitation clause may be unenforceable. Of course, to find out for certain, the worker or employer would need to file a lawsuit and have a judge rule on that provision. That’s expensive.

So, what should health and wellness providers do if they already have patient nonsolicitation agreements in place? Well, it’s possible that the FTC’s final rules will never take effect. Right now, several lawsuits have been filed challenging the final rule. It’s possible that these lawsuits may lead to a delay in the effective date of the rule, and perhaps its ultimate demise.

But, in preparation for the noncompete rule taking effect in August 2024, health and wellness providers should have their legal compliance consultants review their employment agreements and determine if the language can be modified to reduce the risk of noncompliance. Contact us today so we can help you avoid legal headaches before they occur!

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