Health Care Sector Faces Scrutiny for Noncompete Agreements
Noncompete agreements are commonly used in employment. A benchmark 2014 study found that they covered roughly 18% of the general U.S. workforce, or more than 30 million workers. Some estimates suggest that the current rate is significantly higher, ranging from 20% to nearly 47%, depending on the study.
However, their use is under increasing scrutiny. In 2024, the Federal Trade Commission (FTC) attempted to impose a nationwide ban on noncompete agreements. That attempt failed, but both the FTC and individual states are regulating their use, most frequently within the health care sector.
The result is a patchwork of laws that range from banning health care noncompetes outright to limiting their use to certain health care professionals. The FTC is also pursuing targeted enforcement actions against restrictive covenants in health care markets.
Health care organizations — particularly those with a multistate footprint — could benefit from reviewing their noncompete agreements and carefully tailoring the language to comply with applicable federal and state laws. They could also consider less restrictive alternatives to reduce the risk of regulatory action.
What Are Noncompete Agreements?
A noncompete agreement is a legally binding contract that restricts an employee or contractor from working for competitors or starting a rival business after leaving a job. Such agreements typically last from 6 months to 2 years post-employment. They often define specific industries, activities, and geographic areas that are off-limits. Nonsolicitation and nondisclosure agreements are distinct from noncompetes, restricting former employees from stealing clients and coworkers or sharing confidential information.
Noncompete agreements are designed to protect employers’ proprietary information, trade secrets, and client relationships. They also recognize that employees often gain knowledge and skills that are valuable in the marketplace. However, noncompete agreements limit worker mobility, suppress wages, and restrict job choices. They can also hinder entrepreneurship and create legal risks for employees.
How Do Noncompetes Impact Health Care?
These problems are particularly acute in the health care sector. According to the American Medical Association, as many as 45% of physicians are covered by noncompete agreements. The trend is tied to the rise of integrated health systems.
Health systems argue that noncompetes are needed to protect their patient bases and their investments in recruiting physicians. Hospitals use them to restrict competition in local markets and to prevent physicians from taking patients with them to a new practice. By limiting staff mobility, however, noncompetes disrupt patient care by forcing clinicians to relocate or leave the profession. They often worsen provider shortages, particularly in rural areas, and restrict career advancement for new, lower-leverage doctors.
No Blanket Ban of Noncompete Agreements
In April 2024, the FTC under the Biden administration banned almost all new noncompete agreements and most existing ones. The ban was immediately challenged in court. In August 2024, a Texas federal court issued a permanent injunction, ruling the FTC lacked the authority to issue such a sweeping, nationwide regulation.
Following the change in administration, the FTC opted not to fight the court decision, effectively abandoning the ban. On September 5, 2025, the FTC voted 3 to 1 to accede to the vacatur, meaning that the FTC formally accepted the court’s decision striking down the rule and abandoned its appeals. FTC Chairman Andrew N. Ferguson argued that the agency lacked the statutory authority to issue the rule and that its illegality was “patently obvious.”
The proposed rule banning noncompetes was not implemented, meaning employers can continue to use noncompete clauses subject to state-level laws. However, the Trump administration has said it will focus on case-by-case enforcement. So far, the emphasis has been on noncompetes that the FTC considers unreasonable or anticompetitive, particularly in the health care sector.
FTC Enforcement Actions Against Health Care Noncompetes
The FTC is using Section 5 of the FTC Act (15 U.S.C. § 45), which empowers the agency to prohibit “unfair methods of competition.” These enforcement efforts target noncompetes that exceed 1 or 2 years in duration or have excessive geographic scope, particularly involving organizations with dominant market shares. Staffing firms that restrict the movement of traveling nurses and other temporary workers are a specific focus. The agency is also closely monitoring the use of restrictive covenants in acquisitions of medical practices by private equity firms.
In September 2025, the FTC sent letters to numerous large health care employers and staffing firms warning them to review and, if necessary, discontinue overbroad noncompete agreements. The agency also launched a public inquiry to gather information on the prevalence of noncompetes in health care to inform future actions.
The current approach represents a shift from regulation to enforcement. The FTC acknowledges that narrowly tailored noncompetes can serve valid purposes but warns against agreements that unduly restrict patient choice.
States Take Different Approaches
Meanwhile, many states ban or restrict noncompete agreements for health care professionals to improve patient access and provider mobility. These laws often void or limit noncompete agreements for physicians and, in some cases, nurses and other specialists. Where allowed, noncompetes are often limited to 1 year, with some states allowing up to 2 years. Some states limit restrictions to specific geographic areas.
At least five states (California, Minnesota, Montana, North Dakota, and Oklahoma) ban almost all noncompete agreements. Some states only allow noncompetes for highly compensated employees. Several states require employers to disclose noncompete terms to employees before they sign, sometimes with a notice period of 14 days or more.
State regulation of noncompete agreements in health care is rapidly evolving, with a number of states considering new or strengthened rules. Since many hospitals are nonprofit and may not be subject to FTC regulations, state-level regulation is critical for a large portion of the health care workforce.
Organizations Should Prepare for Potential Regulatory Action
Health care isn’t the only industry under scrutiny. The FTC has also targeted organizations in the service and technology sectors. Any organization should anticipate targeted enforcement against noncompete agreements that could be viewed as unreasonable or anticompetitive.
Organizations should review their existing noncompete agreements to determine who is covered and ensure that terms are not overly broad in scope or duration. They should also revise employment contracts for new hires to reflect federal regulatory standards and state laws. Employers may also consider documenting the specific “legitimate business interest” for each clause in the agreement to defend against claims that noncompetes merely stifle competition.
Employers should monitor the changing regulatory landscape and be prepared to notify employees if noncompete clauses are no longer enforceable. Some organizations are shifting their focus toward nondisclosure agreements, trade secret protections, and narrowly tailored nonsolicitation agreements. The key is to consult legal counsel and develop a comprehensive strategy that ensures compliance with legal and regulatory requirements.
Do Your Organization’s Noncompete Agreements Meet Today’s Requirements?
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