The Source Blog

State policy makers have worked to address the complexities of noncompete clauses, especially for healthcare workers, for some time. These state efforts have become even more critical in light of federal efforts stalling.

Background on Noncompete Clauses

Noncompete clauses are terms in contracts between employees and employers that prevent workers, once their employment is over, from competing with that employer (typically by working for a competing employer or starting a competing business). Noncompete provisions are often limited to a specific duration and/or a particular distance from the original employer. These clauses may prohibit physicians from treating patients in a hospital located within that geographic area and may also contain non-solicitation clauses that prohibit physicians from advising patients to follow them to new practices. Businesses argue that noncompete agreements are necessary to protect business interests, trade secrets, client relationships, and confidential information. However, research indicates that noncompete agreements suppress wages, reduce job mobility, inhibit innovation, and support consolidation. In the healthcare field, noncompete agreements impact the availability of care in certain areas, as well as patients’ options in choosing healthcare providers.

Recent Federal Efforts Have Failed

In April of 2024, the Biden administration's FTC issued a final rule banning future noncompete clauses and limiting the enforcement of currently existing agreements. A day after the rule was issued, the Federal Chamber of Commerce and two Texas agencies filed suit against the FTC, claiming that the FTC overstepped its statutory authority. On August 20, 2024, the rule was ultimately blocked by the Northern district of Texas who issued an injunction against the rule, claiming that the FTC exceeded its statutory authority and acted in an "arbitrary and capricious" manner. The current FTC, led by the Trump administration, has announced that it will not appeal the injunction and has indicated a strong preference for upholding noncompete agreements in the sake of businesses' interests.  There are signs that Trump’s FTC will be examining noncompete agreements on a case-by-case basis, and has recently issued warnings about the use of noncompetes in pet cremation businesses and for healthcare employers and staffing companies.  States have consequently taken the lead in regulating and limiting noncompete agreements.

How States Are Addressing the Issue

In response to the lack of federal action, states have begun implementing their own bans and limitations on noncompete clauses. Since January of 2025, eight states have passed legislation prohibiting or limiting noncompete clauses. Arkansas, Colorado, Indiana, Utah, and Wyoming issued noncompete bans specifically targeted at the healthcare field.

• Arkansas SB139 voids noncompete agreements that restrict physicians' ability to practice within their specialty. It aims to protect medical professionals and ensure they are not hindered from serving patients in their practice.
• Colorado SB25-083 applies noncompete bans to highly compensated workers in nursing, dentistry, and medicine. The bill also prohibits bans that prevent healthcare providers from sharing changes in employment with patients in order to preserve patients' rights to choose their healthcare provider.
• Indiana SB 0475 bans new noncompete agreements between physicians and hospitals, including indirect restrictions such as repayment agreements that obligate physicians to hospitals after their employment has ended.
• Utah SB 0228 prohibits healthcare service platforms from requiring healthcare workers to sign noncompete agreements.
• Although Wyoming SF 0107 issues a total voidance and ban on physician noncompete clauses, the state permits noncompete agreements for other sectors for specific confidentiality circumstances.

Florida, Oregon, Texas, and Virginia also issued further restrictions on noncompete clauses.

• Florida HB 1219 limits noncompete agreements to four years for all employees and independent contractors and sets income requirements at twice the mean wage in the employee's county of residence.
• Oregon SB 951 only permits noncompete agreements for up to three years between hospitals and medical professionals where the provider meets certain ownership conditions.
• Virginia SB 1218 limits noncompete agreements to employees who are not entitled to overtime compensation.

Two states have also enacted legislation removing existing prohibitions on noncompete agreements:

• Minnesota HF 2441 removed the state limitation on noncompetes for employees making less than $500,000, and $200,000 if the employee's primary duties are in research.
• North Carolina H67 removed its ban on noncompete agreements for healthcare professionals employed by hospitals.

Prior to the federal injunction, noncompete agreements had been a growing area of state regulation. Currently, 38 states have established their own bans or limitations on noncompete clauses, including 22 states that specifically target the healthcare sector. By March of 2024, over 70 state noncompete bills had been proposed that year. Eight states proposed total bans, five states proposed income thresholds, three targeted veterinarians, and 28 protected the healthcare industry. See https://www.sixfifty.com/blog/state-of-non-compete-bans/ for a more expansive report on 2024 legislation, and https://www.paycor.com/resource-center/articles/non-compete-agreement-by-state/ for information on existing state laws.

Effects of Noncompete Agreements

Noncompete agreements harm the healthcare market by suppressing the labor force and restricting their bargaining power, ultimately stifling competition. Healthcare is particularly vulnerable to the effects of noncompete agreements because the limitation on employment options dramatically impacts patients’ quality and access to care, as well as their choices related to their medical care. Hospitals often require physicians and other healthcare providers to sign noncompete agreements to protect their business and client base. This can lead to provider shortages, declines in market competition and worse care conditions and outcomes for patients. The AMA Code of Medical Ethics states that “[c]ompetition among physicians is ethically justifiable when it is based on such factors as quality of services, skill, experience, conveniences offered to patients, fees, or credit terms. Covenants-not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care.” Banning noncompete agreements would allow providers to prioritize patient care in their practice.

An area of consideration is the exceptions made for noncompete agreements that support competitive markets. States often make exceptions permitting noncompete agreements where physicians are a majority owner and sell their practices. While this typically supports a more competitive market and benefits partners in a sale, it may have adverse impacts when the buying party is a large corporation establishing a monopoly over a practice area or region.

As the share of consolidated hospital chains grows, and the number of privately owned practices declines, more healthcare workers become employees and physicians have limited options to practice outside of the large health systems. This has increased the need for employee protection legislation that protects providers' abilities to practice, and patients' rights to choose providers.

Since there are significant impacts of noncompete agreements on healthcare workers, and recent federal government actions suggest the FTC may be taking a more piecemeal approach, it would not be surprising if we see even more interest from state governments in future years.

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