Federal Court Dismisses Lawsuit Challenging Noncompetes

Attorneys at Patterson Belknap Webb & Tyler have analyzed a recent lawsuit challenging noncompetes. In the suit, a group of Ohio physicians sued Adena Health System, accusing the healthcare provider of anticompetitive behavior through noncompete clauses and other measures.

A federal judge in the Southern District of Ohio has dismissed a lawsuit filed by the former employees of Adena. The plaintiffs had accused the defendant of anticompetitive behavior, including through its imposition of noncompete agreements.

The judge’s opinion in Cohen et al v. Adena Health System et al turned primarily on whether the plaintiffs had antitrust standing, wrote attorneys William F. Cavanaugh, Jr. and Colleen Anderson.

According to the opinion, the plaintiffs’ inability to practice for a year in the designated geographical area, and their difficulty in finding a space to practice, might be sufficient for Article III standing, but not for antitrust standing. Antitrust standing and Article III standing “are not one and the same,” the judge wrote, and courts “not only may- but must – reject claims under Rule 12(b)(6) when antitrust standing is missing.”

The writers note this decision comes on the heels of a recent Federal Trade Commission (FTC) final rule that largely bans noncompete agreements, a rule which the plaintiffs maintained “was driven in part by concerns, expressed in public statements by the FTC, that noncompete agreements increase costs for patients in healthcare.”

But the writers also point out that the rule would be irrelevant in this case, because it does not apply to non-profit organizations like Adena. FTC commissioner Rebecca Kelly Slaughter has acknowledged that fact in public statements, and has urged other agencies to pursue this issue using other strategies.

For now, however, the writers conclude that this case suggests that “notwithstanding the FTC’s views on the harm caused by noncompetes, private litigants with nonprofit employers may face significant hurdles in bringing antitrust challenges to noncompete agreements absent concrete facts demonstrating harm to the competitive process.”