FTC Rule Confronts Non-Binding Agreements: The Impact of a Major Executive Exception on Health Care Organizations.

The Federal Trade Commission’s (FTC) final rule banning non-compete agreements for employees may present particular challenges for employers in the health care industry. Because of the complexity of the structure and organization of many health care organizations, there is a possibility that these organizations may inconsistently apply the Act’s limited exception for senior executives.

This can cause confusion and regulatory risk for health care providers before and after the Act’s effective date. The Act is currently set to go into effect on September 4, though it is subject to significant legal challenges, including two separate petitions for statewide enactment of the Act.

Implementation of the Act may be delayed due to these legal challenges, especially given a recent district court decision directing the FTC to enforce the Act for named plaintiffs. A different warning is highlighted.

*This is the second in a series of warnings about the potential impact of the Final Rule on the health care industry. The first caveat addresses the effect of the Act on individual health care professionals.

Great Performance Exception

The law requires employers to enforce non-compete agreements with senior executives if arrangements are entered into before September 4. A “senior executive” is defined as someone who was paid at least $151,164 in total annual compensation in the previous year and who has a “policy-making position. Despite the two-pronged definition, the top management candidate may be a challenge to implement equally given the ambiguity surrounding the «authority of policy making” and the different roles and responsibilities of clinical and non-clinical managers within the health care organization.

1. The Strategy-Making Stage

A policy-making position is generally defined as a business corporation’s president, chief executive officer or equivalent, or any other corporate officer or natural person who has policy-making authority over a business entity. A business entity usually means a partnership, corporation, corporation, limited liability company, division, or agency.

A. Authority to Make Policy

A policy maker has the ultimate authority over policy decisions that govern significant aspects of a business entity or the general business of a corporate entity. Specifically, this authority does not include merely advising or influencing such strategic decisions or having the final authority to make strategic decisions for a subsidiary or related business in the ordinary course of business. .

B. C-Suite Leadership

The FTC states in the preamble to the Act that «presidents, chief executive officers, and their equivalents are considered senior executives» and that many members of the C-suite may be senior executives if they do strategic decisions that govern key aspects of the business. Note that the FTC does not mean that C-suite members qualify as senior executives forever. A member of the C-suite must hold a position with ultimate authority over strategic decisions that govern key aspects of the organization.

The FTC intentionally expanded the definition of rulemaking status to include a «principal or equivalent director» in recognition of the different organizational practices. Job titles and duties can vary greatly from company to company. Note that the definitions of the Act focus on the duties of the individual, not the title of the individual.

2. Sole Public Provider

The application of the Act is limited to the benefit of a single public provider without membership or subsidies. C-suite members may qualify as senior executives as they will generally be tasked with making policies that affect or control important areas of the organization and report directly to the organization’s board of directors.

3. Multi-Provider Systems

The evaluation of senior management becomes more complex in the case of a multi-hospital or integrated health system that maintains affiliated organizations or subsidiary organizations.

Members of the C-suite or those holding equivalent shares in the life management parent company («common enterprise» under the Act) may qualify as senior executives by virtue of retain their regulatory authority over parent and service providers. It is not clear whether the C-suite members of some of the agencies they own would qualify as senior executives.

This is because while the CEO makes policies, it is possible that the CEO of each subsidiary may not have the final authority to make policies for the business entity, as the parent company may have greater control and influence over their policies. branches and ties. Therefore, consider whether the CEO or CFO of a wholly owned subsidiary qualifies as a senior manager if their decisions are limited to the management and control of the operations of the branch, and the CEO or CFO does not have the power to the end of making strategies on a normal business.

However, the status of a business entity as a subsidiary or member of the organization may not dictate whether their leaders are qualified to be senior executives. The law makes it possible for the medical director of a health system, for example, to qualify as a senior manager if, in addition to having policy-making authority over the institution, the doctor also maintains the ultimate policy-making power for the health system. It is important for employers to review the duties and responsibilities of all officers and directors of health care management facilities to determine whether those positions include ultimate policymaking responsibility.

For example:

A. CEO of Tlasana Hospital

Medicare’s Conditions of Participation require the hospital’s governing body to appoint a CEO who is responsible for managing and operating the hospital. Considering the scope of the CEO’s management responsibilities, it is reasonable to conclude that in many cases the position includes the power to make hospital policies. However, to the extent that a hospital is owned or controlled by a parent corporation, the Hospital Director may have authority over the administration and operation of the hospital as required by Medicare and other providers. with licenses, the CEO’s power to set and policies for the entire health system. it can be reduced, and therefore there is a possibility that the CEO will not be elected as the chief executive and any person who does not compete will not work.

B. Hospital Director

A hospital staff manager may be responsible for developing medical staff policies and procedures for hospital treatment. However, in some cases, the chief of staff may not be authorized to develop or implement policies affecting the medical staff without the approval of the senior medical committee. In this case, the chief of staff may be considered not to have the ultimate authority to make policies as a senior manager under the Act. Therefore, the hospital will not be able to secure a non-compete agreement for the chief of staff position after September 4th.

C. Heads of Hospital Departments

The preamble to the Act makes it clear that the FTC considers directors of company departments or general managers not holding policy-making positions. A hospital laboratory director, for example, may exercise ultimate authority over the operation and management of laboratory operations and even its policies and procedures. However, the director’s authority is generally limited to the laboratory department. Therefore, a director cannot qualify as a senior manager under the Act; any existing non-competitive alliances would not work.

Takeaway food

Health care organizations face significant challenges in determining whether alliances or non-compete agreements can apply to members of their workforce. Employers can broadly interpret the authority’s definition and delegate policymaking authority to health care provider leadership so that non-compete agreements remain in place after the Act’s effective date. Therefore, employers should analyze the job descriptions and responsibilities of the organization’s CEO, CFO, and other leaders, as well as the authenticity of the job requirements, to ensure that the job descriptions speak clearly and convey the power of the importance of policy making.

Job description reviews are especially important for any employment contracts scheduled to begin or be renewed after September 4. Employers may consider including extended terms of employment for selected senior executives to avoid challenges to any non-compete provisions for as long as possible.

Listen to this post