Battle Lines Are Drawn on Noncompete Ban

As expected, big business is lining up to take on the Federal Trade Commission’s new ban on noncompete agreements.

In a move cheered by labor interests across the United States, the FTC approved a measure last month prohibiting employers from using contracts to prevent their workers from moving to rival companies. It took roughly 24 hours for the U.S. Chamber of Commerce to hit back with a lawsuit in federal court to strike down the regulation.

Labor activists view noncompete agreements as tools to reduce competition for the services of workers, which in turn depress their wages and benefits. Advocates for noncompetes, on the other hand, claim such contracts help companies protect trade secrets and intellectual property rights, and maintain ties with existing customers.

How do publicly traded companies themselves feel about noncompete agreements? We used the Intelligize platform to identify recent issuer disclosures on this matter. Apparently, the FTC’s move grabbed the attention of companies in medical-related fields.

CareDx

Healthcare company CareDx, which provides a variety of services to support transplant doctors and patients, discussed the ban in the risk factors section of an April 30 filing. The San Francisco-based company cited concerns that doing away with noncompete agreements will “lead to increased uncertainty in hiring and competition for talent.”

CareDx also noted it relies on “laboratory and field personnel with extensive experience in transplant recipient care and surveillance and close relationships with clinicians, pathologists and other hospital personnel.” In that regard, more employee churn threatens to undermine the company’s relationships with its customers, according to CareDx.

DaVita

Another healthcare company, Colorado-based DaVita Inc., in its most recent annual report noted that noncompete agreements face more than just regulatory threats. Congress and most state legislatures saw bills introduced in 2023 aiming to limit their use. Even though the legislative proposals generally failed to gain traction last year, DaVita pointed out that it won’t stop sponsors from bringing up similar bills this year.

“We are monitoring these developments and any state follow-on regulations for any potential impact on us, including on our agreements with teammates, our arrangements with medical directors, joint venture operating agreements, or the terms of any of our existing agreements with physicians should the new rules ultimately be finalized and implemented in this area,” DaVita said.

Jasper Therapeutics

Jasper Therapeutics dedicated part of the section on risk factors in its recent filing to the possible fallout from banning noncompete agreements. The Bay Area company said it already deals with steep competition for qualified personnel in the region. By prohibiting noncompete agreements, the FTC has only made the process of hiring and retaining skilled employees more difficult in that regard, according to the biotechnology manufacturer.

Similar comments can be found in recent filings by companies such as Maravai Lifesciences Holdings Inc. and FTI Consulting. Perhaps FTI summed up the prevailing sentiment best: “The adoption of restraints on our ability to adopt or enforce employment provisions considered as a restraint on competition may increase turnover and compensation costs to hire and retain professionals, and may adversely impact our ability to hire, maintain and increase headcount, and our ability to service and keep our clients and secure engagements.”

Oddly enough, it sounds like these companies are saying noncompete agreements depress wages. The FTC’s lawyers should thank them.

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