Effects of the Federal Trade Commission's Repeal of Non-Compete Agreements on the Pharma Industry

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In an interview with Pharma Commerce Associate Editor Don Tracy, Ron Lanton, Partner, Lanton Law offers his thoughts on the recent Federal Trade Commission (FTC) repeal of non-compete agreements, and how it could effect the pharma industry.

PC: Last week, the FTC voted to ban noncompete agreements that stop employees from working for competitors. How do you think this will affect the pharmaceutical industry in both the short and long term?

Lanton: I think it'll impact smaller businesses that rely on one manager or have smaller operations teams. I think it will definitely increase the likelihood that employees in that space will either leave or start working at a competing business. So, that’s the smaller guys. When I think of a larger corporation or larger enterprise, I think they have an advantage because a lot of their non-competes also have non-solicitation and confidentiality agreements. I think the biggest difference between the smaller and the larger companies when it comes to the issue is that usually in larger companies, you'll see senior management that had some kind of, as part of their negotiated package deal coming in, a non-compete, or they might have some kind of other enticement that would have allowed them to take the job, assuming that they went ahead and signed the non-compete. The way the FTC rule is written is that if this was the case, then of course, that non-compete is valid. If it's not, then anything goes. I do think it will have an impact on both smaller entities as well as larger entities. With the non-compete, a lot of people from taking business elsewhere, and that’s probably going to happen.

PC: As a result of this ruling, how quickly do you think employees across the industry will take advantage of this and jump ship?

Lanton: It's probably happening now, right? I think people may be reaching out to their employers directly asking them about the validity of what they may have signed. If not, I do know that we've been counseling people to go to a human resource or an employment law attorney if they have specific questions about it. So, think that's what's happening, and I think as those decisions are being made, there’s a new day and as far as what an employee can do now, and I think we're going to see the results of that.

PC: Now that some business groups are planning to sue the FTC, can you see big pharma making a push to try and convince them to repeal the ruling?

Lanton: I thought about that question just now. I can’t speak for big pharma. I don't know what they're going to do. I think if they do something, it might be through another entity, whether that's a trade association of some other kind or an industry association. I just don't see that being a big pharma initiative with everything else they have going on right now. I just don't see that being a big pharma initiative with everything else they have going on right now, between drug pricing and PBMs. I think the FTC rule is here to stay. If the election has anything to do with the rule getting changed, I think first you have to hear some campaign promises about it. If I’m a person who has this, this opens up a realm of new opportunities for me, right? So, now you have that political issue dealing with how do you tell somebody that they have new choices to now they don't have choices, and they have to go back to the way things were? That’s going to be a tightrope to walk. I think the other thing that you have to think about here, besides the election is, who makes up the FTC? I mean, if there isn't administration change, does that change as well? Even if it does change, does this new person go back and change this rule? It’s an interesting thing to think about. I do think that the election will have something to do with it. But again, it just depends on what FTC priorities are. I mean, we've seen a lot of FTC action now on big tech and things like that, and this was something that was kind of in the background. We've heard about this rule change, but we weren't really sure we were going to see it just now. It was a surprise to everybody, so is that really a priority? I don’t know, it’s too early to tell.

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