Behavioral health providers and investors are navigating a pivotal moment with the FTC Noncompete Ban set to reshape the industry. On April 23, 2024, the Federal Trade Commission (FTC) voted 3–2 to finalize the FTC Noncompete Ban Behavioral Health, a sweeping rule banning nearly all noncompete agreements in the United States. This rule, effective in late August 2024, will significantly impact employment practices across the behavioral health landscape — unless legal challenges delay its implementation.
This blog explores the implications of the FTC Noncompete Ban Behavioral Health rule, the looming legal battles, and the specific ways it could impact behavioral health organizations and private equity firms involved in private equity behavioral health acquisition.
What The FTC Rule Does — And Doesn’t Do
The FTC’s final rule declares noncompetes “an unfair method of competition” under Section 5 of the FTC Act. As a result, businesses will be prohibited from entering into new noncompete agreements with nearly all U.S. workers. Existing noncompetes will also become unenforceable, except for a narrow category of “senior executives” — those earning $151,164 or more annually and holding true decision-making roles (e.g., CEO, president).
Additionally, the rule removes the 25% ownership stake requirement for exempting noncompetes during the sale of a business. This broadens protections for buyers in private equity behavioral health acquisition deals, ensuring the acquired executives can still be bound by noncompetes, preserving value post-transaction.
The FTC Noncompete Ban Behavioral Health rule would likely impact nearly 30 million U.S. workers, many of them in healthcare roles, where noncompetes have historically been more prevalent due to the sensitive nature of clinical practice and trade secrets.
Legal Pushback And Uncertainty
Unsurprisingly, the FTC’s move has sparked immediate resistance. The U.S. Chamber of Commerce, one of the nation’s most powerful lobbying organizations, sued the FTC the day after the rule passed, calling it “a blatant power grab.” Other legal challenges are expected, and most experts agree the issue may ultimately land in the Supreme Court.
Whether or not the FTC Noncompete Ban Behavioral Health rule survives legal review, its very existence signals a cultural and regulatory shift that behavioral health providers must plan for. Even if overturned federally, several states may look to replicate it with their own laws.
How The Ban Impacts Behavioral Health Providers
For behavioral health organizations, the rule has complex implications. On the one hand, it removes a barrier to hiring talent from competitors. On the other, it removes a vital retention tool.
In a sector already suffering from clinician shortages and burnout, the FTC Noncompete Ban Behavioral Health rule could exacerbate workforce instability. Noncompetes have historically helped protect investments in clinician training and development — especially in high-demand specialties like autism therapy. For organizations undergoing private equity behavioral health acquisition, the loss of this tool may reduce the value of such investments.
Data from the FTC shows that about 33% of Board-Certified Behavior Analysts (BCBAs) were covered by noncompetes in 2020, and 38% were affected by them in 2023. These rates far exceed the national average of 18%. Many BCBAs reported having to relocate or accept lower-paying jobs because of noncompetes — making this population a prime example of the rule’s intended beneficiaries.
The FTC Noncompete Ban Behavioral Health impact will likely be felt most acutely in rural and underserved areas, where behavioral health providers already struggle to recruit and retain qualified staff.
Nonprofits, NDAs, And Other Legal Avenues
Not all behavioral health providers will be equally impacted. Nonprofit organizations, for example, may not fall under FTC jurisdiction. Those with a “good-faith basis” for believing they’re exempt could still use noncompetes — at least until courts say otherwise. This creates a potential competitive advantage in the talent marketplace, allowing nonprofits to recruit from for-profit competitors while maintaining more restrictive contracts of their own.
The FTC suggests that businesses use nondisclosure agreements (NDAs) and other legal mechanisms to protect trade secrets in lieu of noncompetes. However, these tools typically apply after a breach occurs — unlike noncompetes, which prevent competitive action in the first place.
This shift will likely force a reevaluation of compliance strategy and employment contracts across the behavioral health industry in anticipation of the FTC Noncompete Ban Behavioral Health enforcement timeline.
Implications For Private Equity In Behavioral Health
The rule introduces new risk factors for investors in private equity behavioral health acquisition. Investors often rely on noncompetes to protect their acquisitions — ensuring key executives and clinicians won’t walk away and start competing businesses. Without noncompetes, buyer risk increases, potentially affecting deal valuations and structuring.
However, the FTC left in place a key exemption: noncompetes related to the sale of a business are still allowed. This protects a core principle of private equity behavioral health acquisition — the ability to retain strategic control and reduce immediate post-sale competition.
“There was a real concern that no buyer in good faith is going to buy a business where the only assets of that business are the knowledge workers who work for it,” said Benjamin Dryden, vice chair of Foley & Lardner’s antitrust group. “Unless that buyer could have some assurance that those employees are going to be bound by a noncompete.”
This exemption offers a strategic lever for private equity firms, even as the broader FTC Noncompete Ban Behavioral Health rule limits post-close retention strategies.
Looking Ahead: A Changing Legal Landscape
Even if the FTC rule is blocked in court, the writing is on the wall. States are moving independently to limit or ban noncompetes. California, Minnesota, North Dakota, and Oklahoma have already banned them outright. Over a dozen more states have narrowed their application.
Gomez, co-chair of Polsinelli’s behavioral health practice, believes the FTC’s move may influence future state legislation. “Some states look to the FTC and this rule for inspiration,” he said. For investors pursuing private equity behavioral health acquisition strategies across multiple states, this creates a patchwork of legal risk that must be carefully monitored.
The FTC said many health care workers submitted public comments supporting the rule, highlighting stories of long commutes, missed training, and lost patient continuity caused by noncompetes. These realities underscore the rationale behind the FTC Noncompete Ban Behavioral Health rule — even if it remains mired in controversy.
Final Thoughts
Behavioral health leaders — especially those engaged in or considering private equity behavioral health acquisition — must prepare for a future where noncompetes are either gone or severely limited. Whether or not the FTC rule survives legal challenges, the momentum is clear: the age of noncompetes is ending.
Organizations must evaluate their employment contracts, update their compliance strategies, and explore alternative tools to protect their competitive advantages. Investors must conduct more robust due diligence to assess retention risks and talent pipelines.
The FTC Noncompete Ban Behavioral Health rule may still face an uphill legal battle, but the shift in employment law thinking is already reshaping expectations for how behavioral health businesses grow, retain talent, and navigate future acquisitions.
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