FTC bans non-competes: What DSOs need to know

The rule is set to become effective by fall 2024, and as of April 30, 2024, there had been several legal challenges, the result of which may fundamentally alter the rule itself or its enforceability. However, if the rule is made effective as announced, DSOs must carefully consider the use of non-competes on a go-forward basis to comply (1).

Non-compete agreements have been prevalent in DSOs for decades and have ensured continuity of care, security in investments and protection of proprietary processes. With the FTC's new rule, certain dental professionals and non-clinical employees could more freely move between employers, likely increasing competition for skilled practitioners and seasoned industry employees and driving up labor costs as DSOs and their affiliated dental practices compete for top industry talent.

Importantly, the rule applies to non-compete agreements in employment arrangements, but the FTC made clear that the rule applies to non-compete agreements that merely impact employees, even if found outside of employment agreements. For this reason, DSOs should give careful consideration to non-competition agreements or clauses that the FTC could deem to be part of an employee's employment arrangement, including provisions in employee handbooks, equity grants or award documents, and other agreements common in the industry.

The rule does not affect non-competes in the context of bona fide business sales, allowing DSOs involved in mergers and acquisitions to maintain non-compete clauses in transactional documents, nor does it impact non-compete arrangements during the term of employment, subject to historic enforceability and legality constraints.

The FTC's new rule on non-competes could be a game-changer for DSOs, promoting greater mobility and competition within the dental industry and ushering in a new approach to competing for top industry talent. The rule's ultimate impact remains uncertain, so DSOs must stay vigilant and flexible, ready to adapt their employment and operational strategies to navigate this evolving regulatory landscape effectively.

To learn more about the FTC's rule, contact the author or another Holland & Knight DSO team member (2).

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