The Impact of Non-Compete Agreements on the Economy and Employees

Alan Fredendall // #LeadershipThursday // www.ptonice.com

In today's episode of the PT on ICE Daily Show, ICE Chief Operating Officer Alan Fredendall discusses the history of non-compete agreements, relevance of non-competes to PTs, and recent law changes banning non-competes.

Take a listen to the podcast episode or check out the full show notes on our blog at www.ptonice.com/blog.

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EPISODE TRANSCRIPTION

ALAN FREDENDALLHey everybody, Alan here. Currently I have the pleasure of serving as their Chief Operating Officer here at ICE. Before we jump into today's episode of the PT on ICE Daily Show, let's give a shout out to our sponsor Jane, a clinic management software and EMR. Whether you're just starting to do your research or you've been contemplating switching your software for a while now, the Jane team understands that this process can feel intimidating. That's why their goal is to provide you with the onboarding resources you need to make your switch as smooth as possible. Jane offers personalized calls to set up your account, a free date import, and a variety of online resources to get you up and running quickly once you switch. And if you need a helping hand along the way, you'll have access to unlimited phone, email, and chat support included in your Jane subscription. If you're interested in learning more, you want to book a one-on-one demo, you can head on over to jane.app.switch. And if you decide to make the switch, don't forget to use the code ICEPT1MO at signup to receive a one-month free grace period on your new Jane account. ALAN FREDENDALL Good morning, everybody. Welcome to the PT on ICE Daily Show. Happy Thursday morning. I hope your day is off to a great start. Good morning. If you're listening on YouTube, Instagram, the podcast, we're happy to have you. My name is Alan. I have the pleasure of serving as our Chief Operating Officer here at Ice and a faculty member in our Fitness, Athlete, and Practice Management Divisions here on Leadership Thursday. We're going to talk about non-compete agreements today. But first things first, Leadership Thursday also means that it is Gut Check Thursday. So, Gut Check Thursday this week will be the Ignite Workout from our friends over at Forging Youth Resilience. FIRE, we team up with them every year. They support kids learning CrossFit, using CrossFit to help themselves with mental health, and other things they have going on in their life. So this year, they are doing the Ignite workout in the month of May for Mental Health Awareness Month. And we're going to do this workout this weekend at the Ice Sampler here in Carson City, Nevada. And so the workout, what is it? It is a two-part workout. It has a conditioning piece and it has a weightlifting piece. So it starts with an 18-minute running clock for the whole workout. So start at 18-minute clock and then work your way through 21, 15, 9. Thrusters at 95 for the guys, 65 for the ladies. Lateral burpees over the bar and then ab mat sit-ups. And then in whatever time you have left in that 18-minute window, you're going to max a complex of a power clean and a hang squat clean which must be performed unbroken. So cycling that power clean back down to the hip and then moving through a hang squat clean for a max load. Now this year at The Sampler we're going to do this in teams of three where three folks each do the workout at the same time. They have a combined time and then they have a combined load on their weight lifting piece. And what we're asking folks to do at the sampler, and we're asking you all to do as well if you hit this workout, is to consider donation to FIRE in whatever amount, one cent, 50 cents, one dollar, for every second you are slower, and every pound you are less on the complex than the team that FIRE has assembled of CrossFit Games athletes. So EZ Muhammad, Noah Olsen, and Sam Dancer have teamed up to represent FIRE. And the challenge to all of us is to try our best to beat them. And so we ask you all to consider donation in the seconds you are slower, pounds you are less on your lift. And then ICE will donate $1 per second and $1 per pound to any team whether you're here at The Sampler this weekend on Sunday or whether you're doing it at home in a team of three, we will donate $1 per second that you are faster and $1 per pound that you are heavier on your complex than that team of CrossFit Games athletes. So a little challenge flag for you all. If that is your team and you are not here at The Sampler, we would love to see a full video posted somewhere, shared with us, and then we'll make a donation on behalf of your team to fire. So that is the Ignite Workout. We're super pumped about that. Today on Leadership Thursday, what are we talking about? We're talking about non-compete agreements. So most of us are somewhat familiar with these. Some of us are unfortunately very familiar with these. We may have a non-compete looming over our head that we're worried about. So my goal today is to talk about the history of non-competes, the purpose of non-competes, and then talk about some recent changes to non-compete agreements that are really in our favor on the employee side of the equation. WHY NON-COMPETES? So first things first, when and why did these begin? These have been around for a while. These are becoming more prevalent in healthcare certainly, but these are primarily designed to limit the ability of somebody to leave a job and take not only their experience, but maybe knowledge of technology or systems to a competing company. So that is why they were created. So you might say, well, that seems like a pretty good reason. But in reality, what happened is that non-competes just became so prevalent that pretty much every person at every job, no matter what they were doing at that position, ended up being asked to sign a non-compete agreement. And what we've seen and what the government has done a lot of research on over the years is, is this good or bad for workers? And is it good or bad for the American economy in general? And what they have found over the years is that it is very bad for the economy. Why? Two reasons. It suppresses wages and it increases worker dissatisfaction. So obviously if you're working at a position and you're asking for a raise and you're not getting a raise, you're asking for a bonus, you're not getting a bonus, you're asking for a promotion, you're not getting a promotion, The answer when you have a non-compete agreement has always been too bad. You can't leave anyways, right? So we have no reason to help you further your career along. And now you can imagine how that part influences worker dissatisfaction of feeling like you are stuck, feeling like you have no mobility in your career, feeling like if you leave you might end up with a lawsuit, you might end up in a really bad position both personally and professionally. And the thing to know about non-competes is they are not in effect everywhere. There are some states that have never allowed them, and there are some states over the past couple years that have begun to ban them, either across the state or for specific workers. So a good example, California and New York, a couple other states have completely banned them. And then a lot of other states, about 25 states in total, have restrictions on who they can be applied to. And they can't be applied to specific professions or people making under a certain amount of money. And the whole idea is we cannot control the ability of people to have upward mobility in their career. That's obviously bad for the individual, but it's also bad overall for the economy. People who make less money, spend less money. People who make less money, pay less taxes. So the government is very interested in seeing what happens when non-competes are in effect and when they're not in effect. Your thoughts on California notwithstanding. California is a great example of what happens when non-competes are not allowed. They have been banned in California for a very long period of time. And you can imagine an area like Silicon Valley where all of our technology is essentially created and invented would simply not exist with non-competes because people would not be able to leave and have upward mobility in their career to join a different software company or something like that if they had non-competes in effect. And because non-competes are banned in California, we see higher than usual income for workers in California. Yes, unfortunately that's offset by cost of living because California has a really nice climate and everybody wants to live there. But that is the reason why wages are higher on average. And thinking about world economies, The United States is number one. We have about 25% of all the world's economic output happening just in our country. But not too far behind is the state of California itself. So if we look at largest economies in the world, United States is number one, China is number two, Japan is number three, Germany is number four, and actually the individual state of California is number five. And part of that is favorable worker laws like having non-competes banned. So that is the history of non-competes. RELEVANCE OF NON-COMPETE AGREEMENTS TO PT Why have these never really been appropriate for us as physical therapists and for healthcare workers in general? As physical therapists, we are not really using a lot of proprietary software or technology or systems that we could leave a position and move to a different employer and really have, you know, inside secrets. We can all agree there are really not a lot of inside secrets and technology and stuff like that inside of physical therapy that would offer a competitive advantage. The primary reason employers are upset when PTs leave is that they're now generating revenue for somebody else and not for them anymore. And when we think about what does it take to become a postgraduate professional, especially a healthcare provider, a physician, a physical therapist, a dentist, whatever, it takes a lot of time and it takes a lot of money. And non-competes for healthcare providers have never historically stood up in court anyways to begin with because it is so limiting on our career mobility to say that you cannot work for another physical therapy organization. You cannot create your own physical therapy company for five years within 50 miles of your current employer. All those restrictions that we see in non-compete agreements make it very, very difficult to continue to work. in physical therapy in general, let alone close to where you currently live. Some of them are so restrictive, folks either leave physical therapy entirely, or they have to essentially move very far, potentially out of state, to get around their non-compete agreement. And knowing that they're not held up in court, they're primarily used as a scare tactic of People don't want to be in court. They don't want to be sued. They don't want to potentially lose their license. So even if they've been told, don't worry about that non-compete, they worry about it. In our brick by brick course, our practice management course, this is one of the biggest concerns with people starting the course of, hey, I don't want to start my own business yet. I signed this non-compete for two years, three years, five years. We have met people who are working in fast food, who are waiting tables as physical therapists because they are so scared to leave a position as a physical therapist and work somewhere else. that they decide to just at least temporarily leave physical therapy entirely, which is devastating. That is a significant reduction in the income you could make as a physical therapist if you decide to wait tables or if you decide I have to move out of state to continue to work. And so they have never historically held up in court and they have primarily been used as a scare tactic, especially for physical therapists. NATIONWIDE BAN ON NON-COMPETE AGREEMENTS ISSUED APRIL 23rd, 2024 So, the history of non-competes, the relevance of non-competes to physical therapy, what has happened recently as of this week that is a great change. On Tuesday, the Federal Trade Commission, the FTC, announced that non-competes were banned nationwide. And so they have been watching this issue for a while. They have been doing a lot of research on this issue for a while, and they have decided it's in the best interest of the American people and the American economy to ban non-compete agreements everywhere. So as of that issuing of that rule on Tuesday, April 23rd, 2024, Any current non-compete, so if you're sitting here right now and you're listening to me talk and you have signed a non-compete, it is invalid. It cannot legally be held up in court ever. And you cannot be asked to sign a non-compete moving forward. There are some exceptions here, but they largely don't apply to us as physical therapists. The one exception is that you can still be asked to sign a non-compete if you're a C-suite level executive who has ownership stake in the company that you work for and you make more than $151,174 a year. So some of you, depending on where you live, you might make more than that. However, unless you're a C-suite level executive who has ownership stake in the company you work for, then still you are exempt from being asked to sign a non-compete. So where do we think this will go? Well, we're not quite sure. Any party, public or private, has 120 days to challenge this rule. In August, it will become permanent, but we have about four months where private companies could sue and say, this is not allowed, you can't tell us what we can do with our employees. Public organizations such as state governments at the state government level can sue, and then other governmental organizations can sue. Because the Federal Trade Commission is an executive branch of the government, or at least an arm of the executive branch, the president also has the power to shut this down. Congress has the power to change this by passing a law about it. And then any individual organization, public or private, can elevate this to the level of the Supreme Court for the judicial branch to weigh in. So all three branches of government have chances, one way or another, to weigh on this issue. and either cement it, certainly if it's drafted into law by Congress, it becomes a much more solid rule, but if we don't see it challenged, then this will become permanent. And we really like this here at ICE. Again, in our brick-by-brick course teaching people to open their own practices and how to manage their own practice, this is a large concern. Over at Onward Physical Therapy, starting new clinics, starting cash-based physical therapy across the country, it's also an issue of people do not want to leave their current position and start their own business for fear of what might happen to them legally. So this was a great rule and that we hope this stays in effect and that nobody challenges it over the next four months. We'll be watching this issue closely because it's near and dear to our heart. SUMMARY As much as we love PT 2.0, we think part of PT 2.0 is also being able to run your practice really well or consider opening your own practice and not being limited by things like non-compete. So we're excited about this here at ICE. We hope you're excited too, especially again, if you're sitting here listening and thinking, oh wow, I have signed one. I've been worried about one. It's cool that it doesn't count anymore. So that's where we stand right now. And then we'll see what happens over the summer, what organizations challenge this, hopefully none, but we'll see how it goes. So non-competes, what's the history of them? Largely used to try to keep a competitive edge in business, but what we see happen is really just obviously very personal negative effects on workers, but also an effect on our economy in general. that they're not really relevant to physical therapists to begin with. They're primarily used as a scare tactic, but the good news leaving today's episode is that as of right now, they're not valid anymore. You can't be asked to sign one. If you had signed one, it's unenforceable and it cannot be legally upheld in court, but we're watching to see what develops over the next couple of months. So, that's PTN Ice for Leadership Thursday. I hope you get a chance to hit that Ignite workout. If you have time over this weekend, grab some friends and go for it. If you're gonna be coming to the Ice Sampler, we're looking forward to seeing you very, very soon. Have a great Thursday, have a great weekend. Bye, everybody.

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