Elimination Of Non-Competes Would Have ‘Major’ Effect On Home-Based Care World

In early January, the Federal Trade Commission (FTC) proposed a ban on non-compete agreements nationwide.

The rule is likely to be finalized. When and if it is, it is also likely to have a massive effect on the home health and home care industries.

Such a move would not just hurt companies by allowing leaders to jump ship, but it would also muddy the waters on a slew of contractual agreements between caregivers and clients.

“I definitely think it’s major. It’s extraordinarily significant,” Angelo Spinola, the chair of home care, home health and hospice at the law firm Polsinelli, told Home Health Care News. “If you can’t stop a key executive from leaving and competing against you, that will have a significant impact on the industry.”

The proposed rule can be traced back to the Biden administration’s August 2021 request to the FTC to take a longer look at restricting or banning non-compete agreements. Broadly, the idea was that non-competes restricted workers’ mobility and ability to make a livable wage. 

It seemed at the time that President Biden was referring to low-wage workers specifically. And while this would have an effect on, for instance, the caregiver-provider relationship, it would also be a major shake-up in what home-based care leadership could do when looking for new opportunities.

Spinola offered up the example of a home health administrator. They could be trained up by a home health organization, promoted, and given access to all the patient data and pricing of an organization. 

“Now that individual says, ‘You know what, I’ve got all the relationships. And I’ve been collecting a salary from the owner. But now I’m just going to go across the street, and I’ll open my own agency. I’ll wait for those clinicians to call me and start working with me. And the relationships I’ve developed with the facilities and those referral relationships, I’ll just bring those over,’” he said. 

Home-based care leadership has already been in disarray, to a certain extent. Big-time executives have either left their posts or been forced out in the wake of COVID-19 and other unfavorable market conditions.

If the FTC ruling becomes final, that could become even more so the case.

Lower-level employees

Traditionally, the issue of non-compete agreements has been decided state by state.

For instance, states like Connecticut, Illinois and California are already very tough on non-compete clauses. At the same time, there are states like Georgia that have pro-employer laws in place. Of course, the FTC disallowing them entirely would mean little to no differentiation between states on this issue moving forward.

Despite that consistency, a lack of clarity on what is allowed would probably become a headache for providers. 

For instance, caregiver poaching could pick up significantly. Agencies could poach other agencies’ caregivers after unique training was invested in them.

But perhaps more importantly, private-pay clients could hire away caregivers from an agency with the lure of higher pay. That is generally written into a home care contract – that clients cannot poach caregivers they’re assigned. 

“We’ll have to see what the language looks like,” Spinola said. “But it certainly may prevent or invalidate those clauses. If the FTC does what they say they’re going to do, and bans non-compete across the spectrum, then I believe what that means is that a client could directly hire a caregiver away from an agency, and the agency would not have recourse against that.”

That would be a massive hit to the home care industry, as providers pour training and education resources into caregivers who could then leave for more pay from a client that wants to pay less. An already extremely tight labor market could get worse.

On the other hand, caregivers could earn more wages. The FTC is claiming that the proposed rule would increase wages by nearly $300 billion per year.

“Providers may say, ‘Our inability to protect that business interest makes it less likely that we’ll want to be in business,’” Spinola said. “I think that that’s the major concern. Since that announcement was made, we’ve had call after call from clients and associations trying to determine how we will respond, and what will happen next.”

The likelihood of a ban

Spinola believes that the proposed rule will become final. But that would just be the first step, as a bevy of challenges are likely to come the FTC’s way if it does.

What it comes back to is a familiar concern, which is that the government doesn’t understand the space, Spinola said.

“As with so many things, the government doesn’t understand our industry, right?” he said. “The agency should be able to protect its interests between the client and caregiver, when it is the one that has initiated that connection. The government, they don’t see it that way. We have to spend a lot of time educating the government and the DOJ about how the industry works, how much time and effort goes into training and vetting.”

The battle on non-competes is just getting started, and it will probably take years for the dust to settle.

If the rule becomes final, Spinola expects “significant challenges” against it. In the end, he doesn’t believe a full ban on non-competes nationwide will become the norm in the coming decades.

But even so, there will be a period when providers are in a purgatory of sorts, trying to navigate laws that are no longer as cut and dry as they once were.