Experts say O&P employers will have to work harder to keep their staff from leaving now that a new rule will ban noncompete agreements for most employees.
The rule, passed by the Federal Trade Commission (FTC) in April, as of this writing is scheduled to go into effect on September 4. While legal challenges are pending that could delay or modify the rule, it could upend future O&P hiring and retention practices.
“Regardless of whether legal challenges are or aren’t successful, just the fact that this rule was put out there by the FTC will change the landscape of noncompetes going forward,” says Craig Douglas, vice president of payer and member relations for VGM & Associates. “It will make employers look in the mirror at their business practices and try to get better…. Employees will see they don’t have to be as locked in and maybe will talk to their employer about what the noncompetes look like.”
He says O&P clinics that haven’t already should immediately look at their businesses’ culture and compensation to ensure their employees are happy and want to stay put.
“O&P employers should be getting ready and thinking about what changes they can put in place today so that on September fifth their employees aren’t willing to stand up and walk out the door,” Douglas says.
Noncompete Clauses: A Common Industry Practice
Noncompete clauses are common in employment contracts throughout the medical profession, says Mark Ford, CEO and president, NuTech Synergies. In O&P practices, the clauses are often used for clinicians, experienced technicians, and lead administrative staff members with expertise in O&P billing and regulations.
“It tends to be folks who have more experience or knowledge. The practice owners believe [the employees] have gained some tribal knowledge about their company that is proprietary, and they are trying to keep that information in-house instead of going to a competitor,” Ford says.
He says that those top-level staff members also often bring in the most revenue and are the hardest to replace, thus giving the owner a vested interest in keeping them on staff.
“If you have an expert, you want to keep them on your team, and you don’t want them to go to your competition,” Ford says. “In a well-run practice, a team member’s experience grows over time, so their value to the practice grows as well. That fear is what has driven healthcare, and O&P in particular, toward noncompetes.”
While noncompete agreements are common, their restrictions tend to vary by location, depending on state and local regulations. A few states have banned them entirely while others have restrictions that do not allow them in certain scenarios. Ford says the FTC rule would make a national standard.
“There’s huge differences from state to state, and that’s why the government is trying to create a national standard,” he says.
Douglas says most of the clauses include a set time frame (usually within one to three years) and a set distance within which the employee can’t work for a competitor.
The FTC contends in a press release that the clauses can keep employees from starting a new business, force them to stay in a job they may want to leave, or compel them to relocate.
“Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business,” the FTC states in the release. By banning the agreements across the country, the FTC says there will be more industry competition. It estimates the ban will:
- Create 8,500 new businesses a year
- Increase worker earnings by an average of $524 per year
- Lower healthcare costs by up to $194 billion over the next decade
- Increase the number of patents by up to 29,000 a year for the next ten years
Ford says noncompetes tend to have the most negative impact on more experienced staff who are more settled in their careers and homes.
“A noncompete will have almost no impact for a talented younger clinician who is willing to move a little bit,” Ford says. “As people become more established in the area where they live and put down roots, then the noncompete becomes more of a deterrent.”
To get around the agreement, Ford says he’s seen some clinicians spend a year or so driving a long distance to a clinic out of the bounds of their agreement.
Douglas says he’s also seen some O&P practices willing to take on a staff member with an existing noncompete agreement and pay for any legal challenges that might arise. They both say this rule gives more power to employees to seek out higher wages or a better work environment.
“I don’t think a bunch of employees will up and leave immediately,” Douglas says. “But there will be some for sure. Especially those operating under one of these agreements reluctantly.”
To help prevent a large amount of turnover, he says, O&P business owners will have to take a deep look at their business practices and determine what they can do to retain their team.
Making an Employee-friendly Business
Douglas says that some O&P owners have relied on noncompete clauses to retain their employees rather than focus on more traditional ways of keeping staff, such as increasing compensation and benefits and creating a positive business climate.
“There are some employees who are really good at what they do, and the employer may not have felt they needed to do as much to keep the employee there,” Douglas says. “They may have thought they didn’t have to give a big raise to that person, even if it was justified, because the person couldn’t leave.”
Some practices that have a terrible workplace culture or are unethical have used the clauses to keep employees who otherwise would have left.
“They can’t go apply their skill set elsewhere because they are subject to a noncompete, and they are stuck working for a company they don’t believe in,” he says. “They should not be stuck in a place that is not suited for them or doesn’t adhere to their moral code.”
It’s a good thing that businesses will begin to focus more efforts on making sure that their staff members want to stay with their organization, rather than being forced, Ford says.
“Noncompetes were designed for the benefit of businesses as a last resort. And I think that, in the long term, most businesses are healthier if they aren’t having to threaten their staff to stay,” he says. “In the long run, this can be a much better thing for most businesses, but it’s a change and change can be painful.”
Both Ford and Douglas say that without noncompete agreements, it almost certainly means more money for top-tier staff as practices compete with one another to retain those employees.
“I don’t think it’s going to be an across-the-board 15 percent increase,” Douglas says. “It will happen on a case-by-case basis where owners have to look at what they are doing to make sure their people stay.”
The biggest changes, Ford predicts, won’t be money but rather the mindset of the owners and the overall business culture.
“The change will be more about how owners of practices will have to think about how they motivate their teams to want to stay,” he says. “Staff costs are the highest costs that O&P practices have, and if you’re going through a lot of turnover, that adds up quickly. Smart practice owners will find new ways to encourage their team to come together. Money will be one way, but creative owners will find other ways as well.”
Ford predicts that the profession could see an increase in offerings such as a stake in ownership for top team members. Then a greater number of staff would have an incentive to make the business even more successful.
“This approach doesn’t cost the practice any out-of-pocket money upfront, but if the practice does well, everyone can share in the profits,” he says. “For owners willing to think like that, it’s an attractive incentive and could differentiate your practice from the one down the street.”
Ford says small and mid-size companies will have more of an advantage in this realm. Large, corporate-owned practices will have less ability to make this kind of offer.
Douglas predicts that some practices may allow for more flexibility in working hours. Employees whose jobs allow it may be able to work hybrid schedules in and out of the office. Perhaps practices will shift their hours to let employees off early on the last Friday of the month or allow them to work longer shifts to have more days off.
“There’s only so much you can do with wages, and practices owners will look for other ways to make their staff want to stay there,” he says.
Looking Ahead
With the FTC rule still in judicial limbo, it’s hard to predict what exactly will happen in the future, Douglas says. However, he advises his clients to start preparing so they aren’t caught unaware if and when it comes through.
In an article for the VGM & Associates website, Douglas writes that employers might consider:
- Reviewing their hiring and retention strategies
- Revising current employees’ contracts
- Educating employees about employer and employee rights under the new law
- Seeking guidance regarding potential legal challenges
- Looking into other methods of protecting proprietary information and trade secrets, such as creating nondisclosure agreements or other types of confidentiality agreements
He says that language that protects employers from revealing trade secrets is often written into noncompete clauses. Without that document, employers may need to research other ways to protect themselves in case a disgruntled employee decides to leave and take business secrets to a competitor.
“This shift of power in the wrong hands can be a bad thing that can harm employers and that’s not good either,” Douglas says.
He predicts that lawyers will help practices write some of the language currently in noncompete clauses to include it in other employee agreements, such as nonsolicitation agreements, which prevent a defecting employee from recruiting other employees or from taking customers and clients away from their former practice.
“[Lawyers] will try to maybe incorporate some of the provisions they feel won’t violate the new rule and make a stronger agreement for the employer.”
As to what will be allowed and what won’t, Douglas says that has to still be determined.
In the meantime, he says, employers and employees should use this new rule to rethink future employment contracts.
“Both sides should be looking at this and think about what it used to look like and what it should look like going forward,” he says.
Maria St. Louis-Sanchez can be contacted at [email protected].
Image: iQoncept/stock.adobe.com
