Graeme Sloan/Sipa USA
Lina Khan, chair of the Federal Trade Commission, testifies during a Senate Judiciary Subcommittee hearing on antitrust laws and enforcement on September 20, 2022.
At the Federal Trade Commission’s public forum on banning noncompete agreements, both workers and employers spoke to the impacts of these restrictive contracts across the economy. Business interests condemned the blanket ban as overly broad while workers from doctors to caretakers praised it as a liberating move that could free 1 in 5 employees from what many have called “indentured servitude.”
The commission called for the forum to be held midway through its public comment period, which is set to end on March 20, despite objections from the business community who have called for an extended deadline. On January 5th, the commission announced the proposed ban and received widespread support—some 5,000 public comments were received, and as of the first two weeks just one of them opposed the ban. According to a poll by Ipsos conducted the day after the proposed rule, roughly two-thirds of current employees supported it.
Despite public support, the Chamber of Commerce immediately vowed to fight the ban, declaring it “blatantly unlawful,” as did Republican FTC commissioner Christine Wilson, who announced this week she plans to step down over objections to the agency exerting its authority to set fair standards for competition. Business groups have already marshaled their lobbying forces to try and strike down the ban. Once implemented, the FTC expects a hard-fought legal challenge from a collection of firms.
Though public comments are statutory obligations, a public forum is not. The commission organized the forum in order to hear directly from the public and affected parties to inform its final ruling.
“Our proposal draws on deep expertise and empirical evidence…before we can finalize the rule, we need to closely review the public input and feedback,” said Chairman Lina Khan in her opening remarks.
Employees who spoke at the forum addressed how noncompetes suppressed worker pay and took away incentives for companies to improve working conditions. Kevin Borowski and his wife worked as caretakers in Minneapolis for over a decade, and lived in the residential building that their employer tasked them to manage. As Buroswki explained, he led a unionization drive of workers and filed a class action lawsuit against the company for wage theft. Shortly after getting a settlement in the case, the company fired both him and his wife—which also entailed evicting them from their home. Because of the noncompete clause in his contract, Borowski couldn’t work as a caretaker in Minneapolis for over a year.
“The company fired us, forced us from our home, and told us they couldn’t make a living for over a year…employers should not have that much power over anyone,” said Burowski.
Noncompetes in the medical sector mirror the same oppressive labor conditions that Burowski experienced. Dr. Sameer Braig, a specialist in Florida, detailed how the worst parts of the US healthcare system—from high costs to extensive wait times for physician care—all in one way or another tie back to noncompetes, which have become ubiquitous among health workers. By blocking physicians from leaving their jobs, healthcare giants can exploit doctors by overworking them, which ultimately poses risks to patients. Noncompetes shields large hospitals from competition and lead to health deserts in underserved areas, creating an artificial physician shortage. These agreements were yet another chokepoint in the healthcare system that constrained hospital response during the COVID-19 pandemic.
“Noncompete agreements allow healthcare corporations to create oligopolies by carving out territories, not much different than drug cartels,” said Dr. Sameer.
In logistics, employers prey upon younger workers without much experience about contract agreements to impose noncompete clauses and lock them into years of servitude with no escape. A recruiter in logistics, Steve Cox spoke to the depressed wages and crushing work life in the field due to the extensive use of noncompetes. Once a young person is let go from their job they may not have any qualifications to get into other lines of work.
“Imagine not being able to work in your industry because you got laid off through no fault of your own,” said Cox.
Representatives for industry groups raised their own objections against the FTC's proposed ban. Employer concerns fell into three buckets: the rule was either too broad, an overreach of the agency's powers, or simply unnecessary—though different employers disagreed on which points to prioritize.
The main point of contention is that the rule proposes a blanket ban on noncompetes regardless of employment position or income level—whether that employee flips burgers or dons a white collar. The rationale for a universal prohibition without carve-outs is to avoid unnecessary administrative morass on enforcing the rule.
Johanna Torsome tried to frame industry's pushback against the ban as narrowly concerned with executive level positions. “We believe there's a distinction between noncompetes at senior executive level versus lower employees,” she said.
However, Emily Glendenning, who represents a defense contractor, admitted that companies would really prefer to also lock up mid level and lower employees. For her, the ban'’s main problem would be the spread of trade secrets and proprietary information to competitors. “Noncompetes really need to protect the intellectual property asset…just as a company needs to protect its physical assets,” said Glendenning.
On the question of a company's intellectual property, supporters of the ban argued that trade secret and non-solicitation laws would still apply. A physician also pointed out that trade secrets aren't relevant for many medical specialists bound by noncompetes because their residency training comes from government funding—such as emergency medicine, radiology, anesthesiology, or pathology.
Ross Baird, an investor for Blueprint Local, explained that new startups are just as starved for a competitive labor force as they are for access to capital.
Throughout the hearing, industry advocates conceded that noncompetes were abused in many cases, such as with fast food workers. Yet, they still contended that those issues should be dealt with through litigation or at the state level.
Workers disputed that unfair noncompetes could merely be litigated on a case by case basis. Companies are well-armed with legal teams to go after employees for violating contracts. Even when workers win cases, they can in some cases go bankrupt because of legal fees.
“Many employees I represent have to pay 100,000 to 150,000 dollars in legal fees even if they win their case against noncompetes,” said Dan Kalish, an attorney for HKM Employment.
In the comments period, the Chamber of Commerce echoed the concerns of other businesses about trade secrets while also arguing that the agency had overstepped its power by issuing the ban. In the past year, the FTC has revived its long-dormant powers to ban unfair methods of competition under Section 5 of the FTC Act, which will likely be the main object of a legal challenge to come.
However, a handful of representatives for business interests defended the ban. In the panel discussion, Ross Baird, an investor for Blueprint Local, explained that new startups are just as starved for a competitive labor force as they are for access to capital.
“In states like California and Washington where noncompetes have effectively not been enforced for decades…it’s created the next generation of dynamic companies,” said Baird.
In a number of testimonies, proponents of the ban actually urged the agency to expand the writ of its ban to include other types of anti-competitive contracts. Alex Harman of the Economic Security Project advocates for the agency to also abolish no-poach agreements, in which employers collude with one another not to hire employees from each other’s firms.
Another recommendation put to the FTC is to prohibit the use of “TRAP” covenants. In TRAP contracts, employers force workers to repay the company for the training it provided if they decide to leave the job before a given time period. While the FTC included a limitation on TRAP repayments, it did not ban the practice completely.
“We would like to see the FTC ban contracts functionally equivalent to noncompete clauses such as TRAPs,” said Harman.
In his closing remarks, Commissioner Alvaro Bedoya highlighted the ban's potential to both create jobs through new business startups and also to ameliorate exploitative conditions for workers. “Noncompetes are not just a problem for blue collar workers…they are also imposed on high wage earners,” said Bedoya.
