Non-Compete Agreements: Might They be Procompetitive in Healthcare?

There have been recent calls for nationwide bans on non-compete agreements. Such sentiment is no surprise in healthcare, particularly in physician labor markets. And yet there are many procompetitive justifications for non-compete agreements where they are an important tool to encourage investment. It is well-recognized that these agreements protect investments that would otherwise be expropriated due to hold-up, including trade secrets, customer relationships, recruitment of unique employees, specific training, and specialized capital investment. Healthcare settings often necessitate many of these investments simultaneously, and as a result, investment hold-up is often a significant issue. Empirical literature supports the view that non-compete agreements help promote investment in healthcare. Further, bans to non-compete agreements risk discouraging investment and furthering problems in many healthcare settings that are already facing shortages. We urge a more comprehensive view of non-compete agreements that includes consideration of the investments they help facilitate.

By Paul Wong, Yun Ling, Emily Walden¹

I. INTRODUCTION

Non-compete agreements and restrictive covenants in employment contracts have received renewed attention from policy makers and antitrust practitioners, with many raising concerns that these agreements may restrict competition and labor-force mobility.² For example, federal antitrust agencies have sought comments on the topic,³ state attor