What the FTC Noncompete Rules Mean for Wellness Businesses

What the FTC Noncompete Rules Mean for Wellness Businesses

On May 7, 2024, the Federal Register published the final rules regarding the use of noncompete clauses in contracts. These rules take effect September 4, 2024, unless a court vacates them beforehand. Thus far, there are three court cases challenging the Federal Trade Commission (FTC) noncompete rules. The lead case is Chamber of Commerce for the United States of America et al. v. Federal Trade Commission et al., 6:24-cv-00148, United States District Court for the Eastern District of Texas, filed April 24, 2024. The plaintiff in that case is the U.S. Chamber of Commerce and it has asked the Texas Eastern District Court to prohibit the FTC from enforcing the noncompete rules and to postpone the effective date. The Texas court has indicated that it can resolve the lawsuit before the September 4, 2024, effective date. More than likely this case is on its way to the United States Supreme Court.

At the heart of the lawsuits challenging the FTC noncompete rules are arguments that the FTC does not have the authority to issue the noncompete rules, that the rules are unconstitutional, that the FTC is unconstitutionally structured, and that noncompetes are necessary to safeguard specialized training.[1]

So, what do the noncompete rules say, and what does it mean for wellness businesses like chiropractic clinics, medical spas, IV hydration clinics, health coaching businesses, massage therapy clinics, mental health clinics, among others? It means that after September 4, 2024, your wellness business cannot subject employees or independent contractors to terms or policies that effectively prohibit or penalize that worker from working somewhere else or operating a competing business after they stop working for your business. These terms may include noncompetition agreements, nondisclosure agreements, or nonsolicitation agreements. Whether a wellness business can use these types of “restrictive covenants” will depend on how broadly they are worded. For example, a nondisclosure agreement (NDA) that bars a worker from disclosing in a future job any information that is “usable in” or “relates to” the industry in which they work would be unenforceable.[2] Another NDA that the FTC views as unenforceable is one that bars a worker from disclosing any information or knowledge the worker may obtain during their employment whatsoever, even if that information is publicly available.[3] Two other types of restrictive covenants that may no longer be enforceable after September 4, 2024 are non-solicitation agreements (prohibiting workers from stealing their former employer’s workers or clients/patients) and TRAPs, which are agreements in which the worker agrees to pay the employer for purported training expenses if the worker leaves their job before a certain date.[4]

Whether any of these restrictive covenants “functions to prevent” a worker from getting a new job or starting their own business will be evaluated on a “case-by-case basis.” After looking at all the facts, if the restrictive covenant prevents a worker from accepting other work or starting a business, or penalizes them for doing so, the restrictive covenant will not be enforceable. An example of an unenforceable TRAP would be requiring a wellness worker to repay all they have earned plus pay the wellness company’s future profits, attorney fees and arbitration costs if that worker decides to leave before a certain time period expires.[5] However, asking a former worker to repay a bonus they received if they leave before a certain period of time would be permitted as long as the wellness business did not impose any other conditions (such as dictating who the worker could work for or whether they could start their own business).[6]

It should be noted that restrictive covenants do not have to be in a signed agreement for the noncompete rules to apply: the restrictive covenants could be oral or in a written policy, such as an employee manual.[7 

Different Treatment between Workers and Senior Executives

Wellness businesses that have senior executives with existing noncompetes can keep those in place, even after September 4, 2024. But, after that date, wellness businesses may not impose noncompetes on senior executives. For all other workers (who are not senior executives), all existing and future noncompetes will be unenforceable after September 4, 2024. Who are senior executives? They are workers who:

  • Are in a policy-making position that controls significant aspects of the wellness business AND
  • Received total annual compensation of at least $151,164.[8]

Thus, wellness businesses that hire clinical professionals such as physicians or chiropractors whose compensation meets the minimum threshold and who have authority to make decisions that control significant aspects of the wellness business may be able to keep existing noncompetes in place for those professionals. Contacting your legal counsel to make an informed decision about that is highly recommended.

What About When Wellness Businesses Purchase Another Business?

One exception from the noncompete rules is when there is a bona fide sale of a wellness business and the parties enter into a noncompete clause for the seller. A “bona fide sale” is “one made in good faith as opposed to, for example, a transaction whose sole purpose is to evade the [noncompete] rule.”[9] In those cases, the noncompete clause will be enforceable. So, for example, wellness professionals who sell their practice to a private equity firm could be subject to an enforceable noncompete.  

What Should Wellness Businesses Do Now?

First, work with your legal counsel to determine whether you have restrictive covenants, either written or oral, that would trigger the new rules. If so, consider phasing them out over the summer. This may mean re-writing contracts with your workers (employees and independent contractors). You also need to notify your workers who are subject to noncompetes that the noncompete will not be, and cannot legally be, enforced against the worker.[10] The FTC has provided model notice language you can use to notify your workers.[11]

We here at Wellness Law are ready to help you navigate these new rules. Contact us today!


[1] Eric Packel, Lawsuits Filed Challenging the FTC’s Final Rule on Banning Noncompetes, The National Law Review (April 30, 2024), available at https://natlawreview.com/article/lawsuits-filed-challenging-ftcs-final-rule-banning-non-competes (last visited May 26, 2024).

[2] 89 Fed. Reg. at 38365 (May 7, 2024).

[3] Id.

[4] Id.

[5] Id.

[6] Id. at 38366.

[7] See 16 CFR § 910.1(2) (definition of “non-compete clause”).

[8] 16 CFR § 910.1(definition of “senior executive”).

[9] 89 Fed. Reg. at 38438.

[10] 16 CFR § 910.1(b).

[11] Id.

Back to blog