    [Senate Hearing 116-233]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 116-233

                   NONCOMPETE AGREEMENTS AND AMERICAN WORKERS

    =======================================================================

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON SMALL BUSINESS
                              AND ENTREPRENEURSHIP
                              UNITED STATES SENATE

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               NOVEMBER 14, 2019

                                   __________

          Printed for the use of the Committee on Small Business and
                                 Entrepreneurship

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov

                                ______

                 U.S. GOVERNMENT PUBLISHING OFFICE
    40-641 PDF           WASHINGTON : 2020

                COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                         ONE HUNDRED SIXTEENTH CONGRESS

                                  ----------
                         MARCO RUBIO, Florida, Chairman
                  BENJAMIN L. CARDIN, Maryland, Ranking Member
    JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
    RAND PAUL, Kentucky                  JEANNE SHAHEEN, New Hampshire
    TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
    JONI ERNST, Iowa                     CORY A. BOOKER, New Jersey
    JAMES M. INHOFE, Oklahoma            CHRISTOPHER A. COONS, Delaware
    TODD YOUNG, Indiana                  MAZIE K. HIRONO, Hawaii
    JOHN KENNEDY, Louisiana              TAMMY DUCKWORTH, Illinois
    MITT ROMNEY, Utah                    JACKY ROSEN, Nevada
    JOSH HAWLEY, Missouri
                    Meredith West, Republican Staff Director
                     Sean Moore, Democratic Staff Director

                                C O N T E N T S

                                  ----------

                               Opening Statements

                                                                       Page

    Rubio, Hon. Marco, Chairman, a U.S. Senator from Florida.........     1
    Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator from
      Maryland.......................................................     4

                                   Witnesses

    Bollinger, Mr. Keith, Conover, NC................................     6
    Starr, Ph.D., Mr. Evan, Assistant Professor of Management and
      Organization, Robert H. Smith School of Business, University of
      Maryland, College Park, MD.....................................    12
    Lettieri, Mr. John, President and CEO, Economic Innovation Group
      (EIG), Washington, DC..........................................    21

                              Alphabetical Listing

    Beck Reed Riden LLP
        Statement dated November 28, 2019............................    70
    Bollinger, Mr. Keith
        Testimony....................................................     6
        Prepared statement...........................................     8
    Cardin, Hon. Benjamin L.
        Opening statement............................................     4
    Lettieri, Mr. John
        Testimony....................................................    21
        Prepared statement...........................................    23
        Responses to questions submitted by Ranking Member Cardin and
          Senator Hirono.............................................    64
    Rubio, Hon. Marco
        Opening statement............................................     1
    Starr, Ph.D., Mr. Evan,
        Testimony....................................................    12
        Prepared statement...........................................    14
        Responses to questions submitted by Ranking Member Cardin and
          Senator Hirono.............................................    50

                   NONCOMPETE AGREEMENTS AND AMERICAN WORKERS

                                  ----------

                          THURSDAY, NOVEMBER 14, 2019

                          United States Senate,
                            Committee on Small Business
                                          and Entrepreneurship,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:09 a.m., in
    Room 428A, Russell Senate Office Building, Hon. Marco Rubio,
    Chairman of the Committee, presiding.
        Present: Senators Rubio, Ernst, Young, Kennedy, Romney,
    Hawley, Cardin, Cantwell, Shaheen, and Hirono.

    OPENING STATEMENT OF HON. MARCO RUBIO, CHAIRMAN, A U.S. SENATOR
                              FROM FLORIDA

        Chairman Rubio. I apologize for the delay. This meeting of
    the Senate Committee on Small Business and Entrepreneurship
    will come to order.
        I want to thank every single one of you for being here. I
    also want to welcome all of our witnesses, all three of our
    witnesses for your willingness to share your time and your
    perspective--it is incredibly useful--on an issue that I think
    many people are not really that aware of, the proliferation of
    noncompete agreements among American workers, across all
    sectors, all wage levels, and to examine today sort of the
    impact that this has, particularly on working Americans.
        I have stated before my strong belief that American
    economic policy is not paying enough attention to the well-
    being of American workers. The foundation of our ability to
    grow and support strong families and thriving communities is,
    in my view, the availability of dignified work for the
    workforce.
        And so you reach a point where we have seen what I think is
    very good news, which is three years of very strong economic
    growth, and yet--and yet we cannot ignore that there are still
    millions of people who are struggling to find dignified work in
    certain parts of the country, in certain sectors of the
    economy, and they feel forgotten and they feel left behind.
        Our shared belief in this country has always been that if
    you work hard you should be able to support a family, to buy a
    home, potentially, to own a car, to live out the American dream
    as you define it. It was certainly the experience my parents
    had, coming to this country. And that dream is under strain as
    people face an economy whose structure has changed
    dramatically, an economy that does not seem, in some ways, in
    that new structure, to adequately value the contributions that
    workers make, or the right that working people have to share in
    the value that they create for their employers.
        So it is our job, I believe, to put forward policy
    solutions that address this challenge, to recognize that
    businesses do have a right to make a profit. At the same time,
    workers have a right to enjoy the fruits of their labor, and it
    is that balance, that joint obligation to each other, and
    rights, that helps our economy function when it is at its best.
        And so that brings us to the subject of noncompetes. In a
    noncompete agreement, everyone knows what they are, they
    prohibit an employee from joining or starting a competitor
    after they leave their current employer, and usually
    noncompetes have specified geographic or time boundaries--a
    couple few years, or in this area.
        They have traditionally been justified as a way to protect
    a company's trade secrets, to prevent a former employee from
    taking these secrets to a competitor. They have also been
    justified as a way to protect a firm's investment in a given
    employee, say in job-specific training where they spent a lot
    of money to capacitate someone and then they go off and work
    for someone else, using the training that they paid for.
        So that is why the use of noncompetes, to most people, if
    you talk about, they think it is limited to senior employees,
    to people that have, you know, critical access to trade secrets
    or customer bases, and the like. But in recent years,
    noncompetes have become widespread across numerous sectors in
    our economy, numerous types of jobs, a wide range of wage
    levels.
        Today, about one in every five American workers is bound by
    a noncompete agreement. One out of every five American workers
    is bound by a noncompete agreement. As many as 40 percent of
    all American workers have been subject to a noncompete at some
    point in their career. So 4 out of 10 American workers have had
    a noncompete at some point.
        This is where it gets really startling. Fourteen percent of
    all workers who learn less than $40,000 a year are bound by a
    noncompete agreement. Fifteen percent of workers without a
    four-year college degree have a noncompete agreement. This
    proliferation of noncompete agreements has an impact on workers
    like that, ultimately, because it limits their options and,
    therefore, competition, it has an impact on depressing wages,
    it reduces a worker's mobility and it hinders their ability to
    form a new business, because if you cannot compete, not just
    working for someone else, you cannot even go out and work for
    yourself in that field.
        By restricting someone's freedom to seek better employment
    elsewhere, these agreements reduce a worker's ability to
    increase their pay, by two things. It limits their ability to
    find higher-paying work with a new employer, and two, it gives
    their current employer greater leverage over their pay levels
    at their current job, because, ultimately, your bargaining
    power is taken away, if you cannot quit and go work for someone
    else in the same field where you have established expertise,
    because, you know, you are bound by this agreement. So it gives
    them tremendous leverage on not increasing your pay, and even,
    as we will hear today, on cutting it.
        So one study that was conducted by one of our witnesses,
    Mr. Starr, used Oregon as a case study. Oregon banned
    noncompetes for lower-wage and hourly workers in 2008. The
    study found that after the ban, average wages increased by up
    to 6 percent. Among those hourly workers actually subject to
    noncompetes, the increase may have been as high as 14 to 21
    percent.
        There is story after story of American workers. I am
    talking about security guards, textile workers, construction
    workers, hairstylists, even minimum-wage sandwich-makers,
    having their financial and personal lives deeply disrupted and
    harmed when former employers sought to enforce noncompete
    agreements against them.
        Oregon is not alone in having taken action on this. There
    are numerous states that have passed legislation to restrict
    the use of noncompete agreements. California, North Dakota, and
    Oklahoma actually ban them entirely. A growing number of other
    states have prohibited the applicability of noncompetes to
    workers who earn below a certain income.
        It is important to understand that in many cases,
    especially when it comes to workers who are not at the top of
    their respective working environments, noncompete agreements
    are also not freely negotiated. Workers are often asked to sign
    agreements late, as they come on board, in the onboarding
    process. Sometimes they are pressured into signing after they
    have started a new job.
        Nearly 70 percent of workers who have signed a noncompete
    receive the agreement after the offer letter, and approximately
    one-quarter of these workers were asked to sign the agreement
    on their first day of work, not before they joined but on their
    first day of work, perhaps after having turned down other job
    opportunities.
        So those who might defend noncompete agreements by pointing
    to the right to freely enter into contracts, that is true, but
    we must remember that these contracts, in some respects, in
    important respects, are actually often not freely entered into.
        American workers have a right to compete in the market.
    They have a right to offer their labor to the highest bidder.
    It is wrong, both as a matter of smart economic policy and as a
    matter of basic morality and decency, to deny them that right.
    That is why I have introduced the Freedom to Compete Act, which
    would ban noncompetes for workers below a certain income level,
    an approach similar to that taken by numerous states.
        Senator Young, who is with us here today, and also is a
    member of this Committee, has introduced a Workforce Mobility
    Act with Senator Murphy, which would ban noncompetes more
    broadly, in almost every case, at all income levels. That is
    more in the model of the three states that have done the same,
    and it is important work that he has done and I thank him.
        Senator Young, myself, and a bipartisan group of Senators
    have also asked the GAO, the General Accounting Office, to
    examine these trends and to report to us on what it all means,
    and that study is currently underway.
        I think perhaps there is room to debate whether noncompete
    agreements are useful tools for executives and other high-level
    workers. People could debate that, and I imagine to some
    extent, but the broad harm that noncompetes have cost American
    working families is, in my view, beyond dispute. The need for
    Federal action on noncompete agreements is an idea whose, I
    believe, time has come.
        And so I am pleased to welcome all of you to this important
    discussion, particularly its impact on small business and on
    entrepreneurship, which is a key part of our jurisdiction. This
    has a real impact on entrepreneurship as well. It keeps a lot
    of people from being able to go out and start their own
    business.
        And with that I want to recognize the Ranking Member.

    OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, RANKING MEMBER, A
                       U.S. SENATOR FROM MARYLAND

        Senator Cardin. Well, let me thank Chairman Rubio for
    calling this very, very important hearing on the abuse of
    noncompete clauses and agreements. I want to welcome all three
    of our very distinguished witnesses.
        I am sure it is not going to surprise the Chairman that I
    will single out Dr. Starr. He probably believes because Dr.
    Starr is from the Robert H. Smith School of Business at the
    University of Maryland, which is absolutely true, or because
    the Chairman referred to Dr. Starr's research in the number of
    employees that are now covered by noncompete agreements, and
    that is also true. But I am singling him out because I have
    been told it is Dr. Starr's birthday today, so happy birthday,
    Dr. Starr.
        Senator Young. He is also your star witness.
        [Laughter.]
        Senator Cardin. Thank you, Senator Young. For all those
    reasons we welcome you and we welcome all of our witnesses
    today.
        I just really want to underscore the point that the
    Chairman mentioned, that the original intent of noncompete
    agreements was to protect industrial secrets, trade secrets,
    and to use that in a way to protect intellectual property and
    the way that companies could expand and use employees
    appropriately, but also restrict their use of company
    information. That clearly is not how it is being used today.
        We saw that in the Jimmy John's case, in the fast food
    industry, that got a lot of national attention, or the number
    of hairstylists today that are subject to noncompete
    agreements, health care practitioners. It has clearly been
    abuse.
        The impact is pretty clear. You have taken away from
    employees their bargaining strength and it means that their
    wages are going to be depressed. They are not going to be able
    to earn as much as they should with these types of agreements.
    It limits mobility, which is something that we should not be
    doing for people that should be able to participate in our
    economy. It challenges small businesses to get the talented
    people they need in order to provide the needs of their company
    and the expansion of their companies. It discourages
    entrepreneurship and innovation, particularly in underserved
    communities. It hurts our economy. So for all those reasons, we
    need to take action.
        Now the states, as Chairman Rubio has said, have taken
    action, and they have passed different types of restrictions on
    noncompete agreements. My State of Maryland has adopted an
    approach similar to Senator Rubio's suggestion. There have been
    other states that have gone similar to Senator Young's
    suggestions. The point is that even with state action it needs
    Federal action, because for an employee to challenge what an
    employer has done, even if there is a law in the state, it is
    extremely difficult and challenging, and the economics of it
    and the impact, there is not an effective enforcement at the
    state levels for these noncompete agreements.
        So I agree with Senator Rubio. We need Federal legislation.
    And I thank Senator Rubio for putting forward legislation. I
    thank Senator Young, working with Senator Murphy, for putting
    forward legislation. Our question is, who should be covered by
    it? And it seems to me we should try to get a definition of
    those that are covered where there is not a need for a
    noncompete agreement. Obviously, the lower-wage workers, that
    should be an easy one, but I think we can go beyond that,
    because I hope we can carve out noncompete agreements to only
    where they are needed for the original intent in which they
    were used.
        I think we also have to have effective transparency in this
    transaction, so that the employee knows what they are doing and
    really has an effective way to negotiate this and not being
    asked to sign an agreement on the first day of work. So I hope
    we can deal with that.
        And lastly, let's deal with enforcement. How do you enforce
    this so you do not put all the burden on an employee who does
    not have the resources to challenge what a company is doing?
        So the noncompete agreements are not the only issue. There
    are many issues that address the health of wage growth and
    protect workers, and I am just going to mention them very
    briefly. We need to strengthen collective bargaining. We need
    to close the wealth gap, and this Committee has looked at that,
    and there are tools of the SBA to help entrepreneurs deal
    particularly underserved communities. That would all be
    helpful. Expanding benefits for health care and retirement.
    Addressing the $1.6 trillion of student loan debt. Raising the
    minimum wage. These are all issues that could help us protect
    the workers of America.
        Today we have a chance to do that, at this hearing, to take
    on a very important issue dealing with the abuses of noncompete
    agreements, and I really look forward to our witnesses, our
    discussion, and coming forward with a consensus bill.
        Chairman Rubio. Thank you. We will now go to our witnesses.
        Mr. Bollinger, I am going to begin with you. First of all,
    I want to thank you for being here today and being a part of
    this. As I told you at the outset, when we met a few minutes
    ago, this hearing is nothing like the stuff you are seeing on
    television. You know, this is a very different setting in terms
    of the topic, and I think you will find it to be a place where
    your story is one that those who do not know it are going to be
    shocked by. And so I wanted to begin with you.
        I just want to introduce you. You are a customer service
    manager at American Custom Finishing in Hickory, North
    Carolina, and you have worked in this industry, the textile
    industry, since you graduated from high school in 1982. And we
    thank you very much for being here today. Stories like yours we
    have heard from people all over the country, but I hope those
    who read the record or are watching this on television or are
    here today are going to hear your story and be convinced that
    this is something we need to take action on. So thank you for
    being here.

               STATEMENT OF KEITH BOLLINGER, CONOVER, NC

        Mr. Bollinger. Leaders, Senators, and Senator Marco Rubio,
    thank you for having this hearing and thank you for having me
    here today and giving me the opportunity to speak. I hope we
    can make a difference.
        I began my career in textiles in 1982 as an entry-level
    worker. I worked hard and diligently and worked my way up to a
    supervisor, a salaried position. In 1992, the company that I
    worked for was bought out by the competition, TSG Finishing,
    and I started over there, put back on the clock, so I had to
    start over. Again, I worked my way up through the years and I
    finally worked my way up into management, to a quality control
    manager over their three finishing facilities they had in the
    Hickory, North Carolina, area.
        In 2007, all salaried employees received noncompete
    agreements to sign with their raise and bonuses. I held out. I
    did not like it. I did not agree with it. I did not like the
    fact that it stated all of North America as the noncompete
    territory. It made me very uncomfortable.
        But on January of 2008, I was told by the VP of Operators
    that I had to sign the noncompete agreement. He said, ``Keith,
    you have to sign this.'' I felt my job was at risk. I had a
    family, a young son, a wonderful wife, so I signed it.
        A little over a year later all of us that signed those
    received 35 to 40 percent pay cuts. At the end of that year,
    TSG filed for Chapter 11 bankruptcy protection, and they had a
    meeting with all of us, a conference call, and assured us that
    as soon as they came out of bankruptcy protection the first
    thing they would do was reinstate our pay. Of course, they came
    out of bankruptcy protection and that never happened. They
    reworded it that, ``Oh, we said when business picks back up,''
    which was not the case at all.
        Later, in 2013, I was approached by another company, a
    competitor down the street, by a guy that I used to work with
    at the first place, and he was ready to retire and he wanted me
    to--want to know if I wanted to take his place running the
    operation. And I told him about the noncompete. And I met with
    the majority owner of that company as well, and they said,
    ``Well, just go talk to an attorney and see what he has to
    say,'' and I did.
        And he looked at me and said, ``Well, I do not think it is
    enforceable, because the contract you signed was before they
    went into bankruptcy protection. They came out of bankruptcy
    protection as a new company, a new tax ID, a different company
    altogether, and that is who I was working for.'' He asked me,
    ``Did you sign a noncompete with that company?'' No, I did not.
    He said, ``Well, I do not see where it is enforceable. You
    should be free to go wherever you want to go.
        So I accepted the job and loved it. It was my dream job. I
    was Operations Manager. But they came after me. I won,
    initially, in business court, and my attorney said,
    ``Congratulations. You do not have anything to worry about.
    They will try to appeal it, but there is no way an appeals
    court will overturn this.'' Well, he was wrong. They overturned
    it and I was immediately laid off, for fear that they would be
    drug into the lawsuit. Well, they got drug into the lawsuit
    anyway.
        I went to work part-time after that for a rigger, who moves
    heavy equipment, industrial equipment, just turning wrenches. A
    grunt. A gopher. They got wind of that and sued him. So later
    they dropped him.
        But I had no choice but to go along with the other people
    in the lawsuit and settle. I could not afford to fight it. My
    attorney bills had mounted to the point where there was just no
    way I could pay it. We wiped out our savings, relied on credit
    cards. I got loans from family members and friends. Otherwise,
    I would have lost everything.
        I did not have the knowledge of chemical recipes or
    anything else. It is not like I had the Colonel's secret
    recipe. You know, I was just a working stiff who worked
    diligently to get ahead in life, and when an opportunity came
    for me to provide a better life for my family, it was yanked
    out from under me.
        I am now making about what I did 20 years ago, with no
    benefits, and honestly, I do not think that I will ever fully
    recover from it, and neither will my family.
        I hope that things do change. I know what happens today
    will not help undo what happened to me. It will not right the
    wrongs. But if my testimony today can help prevent somebody
    else from going through what I have gone through, I had to be
    here today, and I thank you very much.
        [The prepared statement of Mr. Bollinger follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Rubio. Thank you so much for sharing that story
    with the Committee. It was very impactful. It puts a real human
    face on what we are trying to deal with here today.
        Dr. Starr is the Assistant Professor of Management and
    Organization at the Smith School of Business at the University
    of Maryland, and he is also one of the Nation's leading
    researchers on the subject of noncompete agreements and their
    effect on employee mobility and earnings.
        Thank you for being here today. You are recognized.

        STATEMENT OF EVAN STARR, Ph.D., ASSISTANT PROFESSOR OF
        MANAGEMENT AND ORGANIZATION, ROBERT H. SMITH SCHOOL OF
           BUSINESS, UNIVERSITY OF MARYLAND, COLLEGE PARK, MD

        Mr. Starr. Thank you, Chairman Rubio and Ranking Member
    Cardin, and other members of the Committee. Thank you for the
    opportunity to testify on the important topic of noncompete
    agreements and American workers.
        My name is Evan Starr and I am an Assistant Professor at
    the University of Maryland's Robert H. Smith School of
    Business, and today is my birthday, and there are few places I
    would rather be and few topics I would rather be discussing, so
    thank you.
        A noncompete agreement is an employment provision that
    prohibits a departing worker from joining or starting a
    competing firm. As an example, I would like to read the text of
    a noncompete signed in 2015, by a temporarily employed Amazon
    packer making $12 an hour.
        ``During employment and for 18 months after the separation
    date, employee will not engage in or support the development,
    manufacture, marketing, or sale of any product or service that
    competes or is intended to compete with any product or service
    sold, offered, or otherwise provided by Amazon, that employee
    worked on or supported or about which employee obtained or
    received confidential information.''
        The reason noncompetes like this are important is because
    they may prevent workers from working where they want and
    earning what they could in the labor market.
        The last few years have seen a bevy of new laws seeking to
    ban noncompetes for all or a subset of workers, including in
    Massachusetts, Washington, Florida, New Hampshire, Illinois,
    Hawaii, New Jersey, my home State of Maryland, and across the
    whole United States.
        In my research, I have sought to understand how common
    noncompetes are, how they influence workers and firms, and what
    of effects banning them has on economic activity.
        In my testimony today I would like to make the following
    points. First, noncompetes are everywhere. Doggie daycare
    workers, unpaid interns, volunteer coaches, janitors, and
    hairstylists are just some of the jobs in which noncompetes
    have been found. In a 2014 study of 11,500 U.S. workers, J.J.
    Prescott, Norman Bishara, and I estimate that approximately one
    in five private sector workers were bound by noncompetes, and
    that approximately 40 percent of labor force participants had
    ever signed one.
        We also find that while noncompetes are more common among
    executives and managers, hourly paid workers actually make up
    the majority of noncompete signers because they represent such
    a large part of the labor force.
        Second, noncompetes are negotiated over just 10 percent of
    the time and are regularly asked of workers when they have
    limited bargaining power, such as on the first day of the job.
        Third, despite reasonable arguments that noncompetes might
    benefit workers and firms, most research suggests that the use
    and enforceability of noncompetes reduces wages,
    entrepreneurship, and job-to-job mobility, making it harder for
    firms to hire and creating negative spillovers in the market.
        For example, after Oregon banned noncompetes for low-wage
    workers in 2008, my colleague, Michael Lipsitz, and I find that
    hourly worker wages rose up to 6 percent five years after the
    ban, while job-to-job mobility rose 17 percent. We also find
    that the wage gains were stronger for women than for men.
        In another study, my co-authors and I examined a ban on
    noncompetes that Hawaii implemented in 2015, for only high-tech
    workers, an occupation in which the potential benefits of
    investment are very salient. Yet similar to the low-wage study,
    we find that this ban raised quarterly earnings for new hires
    by 4 percent and increased job mobility by 11 percent.
        Other studies find that where it is easier to enforce
    noncompetes, the startup rate is lower and businesses struggle
    to hire.
        Taken together, these results suggest that noncompetes do
    indeed prevent both low-wage and high-tech workers from working
    where they want and earning what they could.
        Fourth, bans on noncompetes do not tell the whole story. In
    states where noncompetes are unenforceable, they still cover 19
    percent of the workforce. Moreover, these unenforceable
    noncompetes also appear to chill employee mobility.
        Fifth, two recent studies suggest that the negative effects
    of noncompetes are borne not only by those who sign them but
    are also shared by others in the labor market.
        Sixth, other tools can do similar jobs for the firm without
    constraining worker options so severely. For example,
    nondisclosure agreements and trade secret laws can protect
    trade secrets, while non-solicitation agreements can protect
    clients. Yet neither of these provisions limit job options for
    departing workers. So the efficacy of noncompetes should be
    judged based on their value relative to these less-restrictive
    alternatives.
        Finally, I would like to note that this is not a classic
    firm-versus-worker issue, because firms are on both sides of
    the equation here. Firms may not want to lose workers to
    competitors but they would like to hire from their competitors.
        I would also like to note that it has been uplifting to see
    bipartisan interest in this space, including recent bills from
    Chairman Rubio, Senator Young, and Senator Murphy.
        I look forward to your questions. Thank you.
        [The prepared statement of Mr. Starr follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Rubio. Thank you. And finally, I want to make sure
    that I introduce you appropriately. Mr. Lettieri, right--am I
    pronouncing it correctly--is our third witness, and let me make
    sure I introduce you appropriately here. I lost my--as I was
    reading along on the previous statement.
        He is the President and CEO of the Economic Innovation
    Group. He previously served as the Vice President of Public
    Policy and Government Affairs for the Organization of
    International Investment, where he led the organization's State
    and Federal policy work on tax reform, trade, investment
    promotion, and manufacturing. And before that he was the
    Director of Public and Government Affairs for a global
    aerospace manufacturer, and before that was a foreign policy
    aid to former U.S. Senator Chuck Hagel, where he served on the
    Foreign Relations Committee.
        So you have like nine lives. That is great. Well, thank you
    for being here. We look forward to your testimony.

        STATEMENT OF JOHN LETTIERI, PRESIDENT AND CEO, ECONOMIC
                 INNOVATION GROUP (EIG), WASHINGTON, DC

        Mr. Lettieri. Thank you, Chairman Rubio and Ranking Member
    Cardin, members of the Committee. I appreciate this opportunity
    to testify on the impact of noncompete agreements on American
    workers and the broader U.S. economy.
        Today roughly 20 percent of the American workforce is not
    allowed to take a better job in the field of their choice,
    regardless of higher pay, better benefits, improved job
    satisfaction, or any other factor. The reason is simple: they
    are bound by a noncompete agreement.
        Noncompetes erect barriers to worker mobility and dampen
    the vitality of the U.S. economy. Healthy labor markets depend
    both upon vigorous competition between firms for talent and
    upon the ability of workers to freely market their skills to
    interested employers. Likewise, a dynamic economy depends upon
    worker mobility, which facilitates innovation and helps know-
    how proliferate throughout the economy. Noncompetes directly
    undermine this vital process.
        Research finds that strict enforcement of noncompetes is
    associated with lower wages as well as reduced job-to-job
    mobility and weaker rates of firm formation. Noncompetes also
    appear to exacerbate racial and gender wage gaps as well as the
    gender gap in entrepreneurship. And noncompetes do not simply
    impact workers who sign such agreements. They have a chilling
    effect on the entire labor market, as my fellow witness, Evan
    Starr, has found.
        But these provisions are not just bad for workers. They are
    bad for employers as well. Most obvious is that they reduce the
    supply of available workers and can make it difficult for
    businesses to grow. The harmful effect of noncompetes on new
    businesses, in particular, both by stifling would-be
    entrepreneurs and limiting the pool of much-needed talent for
    startups should be of the utmost concern to this Committee.
        So at time when policymakers are struggling to find ways to
    increase rates of business formation, strengthen innovation,
    and boost wages, noncompete reform is an obvious place to
    start. Indeed, Federal noncompete reform would be among the
    most impactful and least expensive way to jumpstart economic
    dynamism and improve the fortunes of American workers.
        So what form should Federal policy take? I believe the best
    answer would be a nearly universal restriction on noncompetes
    across all occupations and income levels. However, there are a
    wide variety of options from which Congress can choose.
        Regardless of the scope, Federal policy should be guided by
    the following core objectives. First, require transparency.
    Many of the negative effects of noncompetes can be reduced
    simply by ensuring greater transparency and improving workers'
    awareness of their own bargaining position. Employees should
    always be given adequate notice before being asked to sign away
    future job opportunities.
        Second, create disincentives for overuse. There are
    currently few disincentives for an employer to require
    noncompetes, even when agreements are written so broadly as to
    be unenforceable in court and even when they cover employees
    who have no specialized skill or trade secrets.
        Third, limit the pool of eligible workers. There are
    currently no Federal restrictions on the kinds of workers that
    can be bound by a noncompete. Many options exist to narrow the
    eligible pool by wage, by education attainment, or by industry.
    The goal should be, at worst, that noncompetes are reserved
    only for senior executives and other top talent.
        Fourth, limit the scope of the agreements themselves. Even
    if policymakers see a valid use for noncompetes under certain
    circumstances, almost everyone can agree the scope of such
    agreements should be limited in various ways, including their
    duration and geographic reach.
        When considering various legislative options, policymakers
    must be mindful of why reform is necessary and what it can
    accomplish if properly crafted. Achieving the full promise of
    noncompete reform requires enabling skilled workers to better
    deploy their talents and ideas throughout the economy,
    including by starting new firms and bringing innovations to
    market. Exemptions for low-wage workers alone, while very
    important, will fall short of reaching this critical goal.
        Here I also want to express my appreciation for the two
    bills introduced by members of this Committee, Chairman Rubio
    and Senator Young. These represent really valuable
    contributions to the broader debate about how to reform
    noncompetes at the Federal level.
        So in closing, workers should be free to seek better jobs
    and compete in the labor market without permission from their
    former employer. Employers should be rewarded for winning the
    competition for talent, not by holding workers hostage. And
    policymakers should be relentlessly focused on ensuring an
    environment that encourages competition, healthy risk-taking,
    and worker mobility.
        So I urge Congress to act upon this rare opportunity to
    revive economic dynamism and provide a long-overdue boost to
    the wages of American workers, all without spending a dollar of
    taxpayer money.
        Thank you for holding this important hearing.
        [The prepared statement of Mr. Lettieri follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Rubio. Thank you. We will begin questions with the
    Ranking Member.
        Senator Cardin. Well, let me thank all three of the
    witnesses, but to Mr. Bollinger, let me just tell you, your
    presence here will make a difference. You hear the numbers, but
    when you see the individual who was impacted by these abuses it
    motivates. So I know it took courage for you to be here, but I
    want you to know it is incredibly helpful to us to see an
    example of a person's life that has been affected by these
    abuses. So again, thank you very much for being here.
        As I listen to the witnesses here, I come to the conclusion
    that perhaps we should abolish all noncompetes, and I say that
    with the understanding that there is an important
    responsibility of an industry to protect its trade secrets.
        But, Dr. Starr, you make a point that there is a legal
    responsibility. You could have noncompete agreements. Companies
    have the capacity to enforce that. They are not in the same
    position as an individual employee, as far as their resources
    are concerned, as we saw in Mr. Bollinger's case. We could have
    restrictions on not soliciting customers or clients, as you
    point out, which would take care of that issue.
        So maybe we are starting from the wrong side. Maybe we
    should be looking at a total abolition of these contracts and
    then come back to where it is necessary perhaps to clarify the
    law.
        I will just point out one last thing before I get your
    responses to this. In law school, I learned that noncompete
    agreements had to be very narrowly tailored. Otherwise, they
    were not enforceable. There had to be a justification for
    noncompete agreements, and that if it did not do that it would
    not be enforceable. So it is clear to me that overwhelming
    majorities of these noncompete agreements are not enforceable,
    but you see in Mr. Bollinger's case, what he had to go through.
        So we have to act, and with this type of an abuse, I do not
    really want to leave an opening for abusive companies figuring
    out a way to get around a definition that we have put in law.
        So help me, and if I could go to our two experts on this.
    Can we draft something like that?
        Mr. Lettieri. I think you put it very well. We are starting
    with the wrong presumption, in too many cases. The presumption
    should be that workers should always be free to market their
    talent in an open labor market. That should be the presumption,
    not the presumption that employers have a right to constrain
    workers' future mobility. And if we work our way backwards from
    there, as I said in my testimony, I think the policy solution
    that is both the most beneficial to American workers, the most
    beneficial to business dynamism, the most beneficial to
    innovation or overall competitiveness is a nearly total ban.
        I see two--and this reflects Senator Young's legislation--I
    see two cases where you can make exceptions that are very
    reasonable, and they are reasonable because the parties
    involved are on more or less even footing and there is no
    asymmetry between the two parties, and that is in the
    dissolution of a partnership and in the sale of a business,
    where the business owner binds him or herself to a noncompete
    as part of the transaction.
        Those are reasonable exceptions that do not exploit an
    informational or resource asymmetry between, as you see in Mr.
    Bollinger's case, an employer who has the resources to take an
    unenforceable noncompete to court and go through multiple
    rounds of litigation and an employee who would be risking his
    entire financial security to do so.
        Senator Cardin. Dr. Starr.
        Mr. Starr. I would say for me the most compelling evidence
    is a few things. First is that there are several states in
    which noncompetes are already entirely unenforceable, states
    like California, who adopted their ban on noncompetes in 1972,
    and North Dakota and Oklahoma. And so these states already
    exist and some even claim that California's early ban on
    noncompetes was a key reason that Silicon Valley came to be
    Silicon Valley.
        And so those states have not fallen off the cliff, to the
    best of my knowledge, and so there is some evidence that maybe
    that could be the way forward.
        Senator Cardin. So let me ask you, in California if you
    have the circumstances such as a sale of business, where it is
    reasonable to include a noncompete as a part of it, how would
    they do it in California?
        Mr. Starr. In California they have an exception for
    noncompetes incident to the sale of a business.
        Senator Cardin. So you are taking a total ban but with
    limited exceptions, which, as I understand it, is the approach
    taken by Senator Young and Senator Murphy.
        Mr. Starr. I think that is true is almost all states.
        Senator Cardin. How about transparency? How do you deal
    with that issue? You both have commented that you should not be
    faced with signing something at the last minute. I understand
    if you have a total ban this may become a moot issue, but
    absent that, how do you deal effectively with transparency?
        Mr. Starr. Yeah, that is right. Even setting aside a ban on
    which workers would be exempted from signing a noncompete, the
    floor should always be transparency that allows for some basic
    bargaining between the employer and the employee. As both of us
    noted in our testimony, so many of the noncompetes that are
    signed today are signed after the employees already foreclosed
    on other job options, and it is just part of the onboarding
    process of the first day of work. So that is clearly an
    attempt, whether intentional or not, to exploit that asymmetry
    between the employer and the employee, and it puts the light on
    the idea that these are bargained contracts.
        And so, at a minimum, transparency helps to ensure that--
    and I would go further than just prior notice. I would say
    employers should be transparent about what the workers' rights
    actually are in that state, what's actually enforceable in that
    state, and that in addition to transparency, the rule should be
    that an employer cannot offer for signature a noncompete that
    is not enforceable, that is written overly broad. Those
    elements alone, even setting aside a ban, would help to reduce
    the negative impact of noncompetes on the economy.
        Senator Cardin. Thank you. Thank you, Mr. Chairman.
        Chairman Rubio. Senator Hawley.
        Senator Hawley. Thank you, Mr. Chairman, and thanks to all
    the witnesses for being here. Mr. Bollinger, I want to thank
    you, particularly, for being here, for taking the time to be
    here, for sharing your story, and I just want to say I am so
    sorry that what happened to you has happened to you. Thank you
    for being willing to share about it, but it will help us do
    something about it, so it does not happen to other people.
        Can I just ask you, when your company forced you to sign
    the noncompete, what did they tell you about it at the time? I
    mean, did they say that, you know, this is not really a big
    deal, you just need to sign this? I mean, were you given any
    kind of--did anybody explain it and say, you know, this is
    going to prevent you from working, basically, in the future?
        Mr. Bollinger. There was no meeting. There was no
    explanation. No one sat us down and went through it and
    explained anything to us. It was given to us--it was an
    envelope in my mailbox, so nothing really was explained.
        Senator Hawley. Yeah. I imagine that that is all too
    typical. It is almost what we lawyers call a contract of
    adhesion. But thank you again for your testimony.
        Mr. Lettieri, I want to ask you, in 2016, the Treasury
    Department published a report on noncompete agreements and they
    made a number of findings, and I just want to give you a chance
    to respond to some of these. These are potential economic
    justifications for noncompete agreements, so I just wonder what
    you might think of these.
        One of them is noncompetes are necessary for firms to
    protect trade secrets. Anything to that?
        Mr. Lettieri. I will just pick up where Dr. Starr left off.
    The State of California is home to many of the most trade
    secret-intensive, IP-intensive companies in the world. It is
    the crown jewel of worldwide innovation and technology. If
    noncompetes were necessary to protect trade secrets, Silicon
    Valley would not exist.
        Senator Hawley. How about this: noncompetes encourage
    investment in workers. What do you think about that?
        Mr. Lettieri. Sure. So there is some evidence that in
    narrow circumstances noncompetes can be associated with firm
    investment in workers. What we have to be mindful of is the
    tradeoff, and for policymakers the question is not what is the
    benefit to an individual firm or employee, it is what are the
    broader benefits or harms to the economy and to the labor
    market?
        And so what we find over and over again in research is that
    noncompetes and strict enforcement of noncompetes are
    associated with depressed wages throughout a labor market,
    depressed innovation and firm formation throughout a labor
    market, regardless of specific instances of individualized
    benefit to an employee or to a firm.
        So again, I think even where there may be a reasonable case
    that in an individual circumstance there could be a benefit to
    the transaction, what policymakers have to keep in mind is what
    is the broader harm?
        Senator Hawley. That is a great point. The effect on the
    labor market, I think, is a really important point, and the
    effect of wages across the board.
        What about this: noncompetes help firms screen for workers
    who are likelier to stick with the company for the long haul.
    Thoughts on that one?
        Mr. Lettieri. Again, I think that is the wrong tool for
    that task. If an employer wants an employee to stick with them
    for the long haul they could try radical ideas like paying
    better, offering better benefits, creating a better work
    environment, and again, the presumption should be that
    employees should be free to go market their labor.
        Senator Hawley. Thanks for all of that. You know, it seems
    to me that based on Treasury's report here and the testimony
    you have offered today and both of your work and research that
    we know employers benefit from noncompetes, discrete individual
    employers, but workers and the labor market as a whole seems to
    be an entirely different matter.
        Let me ask you one other thing. Mr. Starr, I will start
    with you on this one. I am from Missouri, and in Missouri we
    have a large rural population. And so in these cases, in
    smaller towns like the one I grew up in, there are not that
    many employers. So if you have got a noncompete in your
    contract, and then, you know, you find you want to change jobs,
    I mean, you do not always have the opportunity to move
    somewhere. It is not easy just to go and find, oh sure, there
    are 10 other employers who will take me, or I have got to
    uproot my family and move somewhere where I do not have social
    support, the rest of my family is not there. People do not want
    to do that, quite reasonably.
        So could you give us a sense of how noncompetes might
    impact areas and regions with labor markets like that, in
    smaller rural areas?
        Mr. Starr. I think that there are two things that are
    relevant. The first is that if there are only a few employers
    in there and you have knocked out the other ones with a
    noncompete, then absolutely you are--we have what we would call
    a monopsony, where you have one buyer of labor in the market,
    and we know that when we have a monopsony we have lower wages
    and reduced employment.
        The other dual effect to think about is that noncompetes
    are also product market restrictions. You cannot enter and
    start a new company, and so you are going to sustain this kind
    of really high concentration of firms.
        Senator Hawley. Thank you. That is a great point. And I
    think that, again, as somebody who comes from a rural area,
    this is a problem that we see frequently, that it is
    difficult--new firm formation is difficult, it is difficult to
    start a new job, find workers, and it is difficult for workers
    like Mr. Bollinger, who want to change jobs but do not
    necessarily want to move to a whole other region or place to
    actually have the freedom to do that.
        Thank you, Mr. Chairman, for holding this hearing on this
    really important topic for our workers.
        Chairman Rubio. Thank you.
        Senator Hirono.
        Senator Hirono. Thank you, Mr. Chairman. It is nice to have
    an issue on which I think there is bipartisan agreement that we
    need to do something.
        These noncompete contracts, which, Dr. Starr, you say are
    everywhere, it kind of reminds me of mandatory arbitration
    clauses in employment contracts that are also not bargained
    for. So I think it is pretty clear from your testimony.
        And Mr. Bollinger, I find it astounding that your company
    was able to force you to not compete, and did you say entire
    North America?
        Mr. Bollinger. Yes, ma'am.
        Senator Hirono. And, yes, a North Carolina court deemed
    that to be okay?
        Mr. Bollinger. Well, I won first in the business court.
        Senator Hirono. In the business court, yes.
        Mr. Bollinger. But then that was overturned, so yes----
        Senator Hirono. Yeah. That is what I mean. So after this
    kind of, in my view, an outrageous decision, did the North
    Carolina legislature change the law in any way to prevent this
    kind of thing from happening to others?
        Mr. Bollinger. Excuse me?
        Senator Hirono. Did the North Carolina legislature enact
    any kind of a law that would prevent this sort of thing from
    happening to other employees?
        Mr. Bollinger. No, ma'am. Not that I know of.
        Senator Hirono. Nothing. I am glad that other states have
    enacted this kind of law.
        Dr. Starr, I was curious as to how it is that you and your
    team picked Hawaii to research. Was there any particular reason
    that you wanted to do that?
        Mr. Starr. Yeah. What we are looking for when we are trying
    to identify the causal effect of a ban on noncompetes are
    natural experiments where states kind of randomly flip their
    switches from enforcement to a ban. And so banning noncompetes
    is a pretty rare event. And so the Oregon ban was the first of
    its kind in 2008, and Hawaii is a really relevant ban because
    it is only for high-tech workers. And so there are arguments
    about low-wage workers that may be different for high-tech
    workers, and so the study of Hawaii gives us a nice natural
    experiment to study what happens when you ban noncompetes for
    high-tech workers.
        Senator Hirono. Yeah. And you also studied the effect of
    noncompetes on low-wage workers?
        Mr. Starr. That is right, yeah.
        Senator Hirono. So it seems that these noncompetes seem to
    have a negative impact across the board for employees, and I
    can see where certain exceptions should be made for trade
    secrets, et cetera. So this negative effect would be also
    particularly harmful to women, because a lot of women are in
    low-wage jobs.
        Mr. Starr. That is right. There are two studies which look
    at the differential effect of noncompete enforcement on women
    versus men, and they find that, in general noncompetes dampen
    wages more for women than men.
        Senator Hirono. Would you say there is overwhelming
    evidence that noncompetes, these kinds of broad noncompetes
    that are not bargained for--they are not face-to-face
    bargained--there is overwhelming evidence that these are highly
    negative kinds of things? Why is it that more states have not
    enacted laws that either really limit the use of noncompetes or
    banned them altogether? And you can also respond, Mr. Lettieri.
        Mr. Starr. So I will just say on the latter question, I
    think we are seeing a lot of movement on this recently, and I
    think, honestly, we have not known until 2014 how common
    noncompetes were. There were a few studies of executives, a few
    studies of tech workers, but until we started uncovering some
    of this information, we really did not know, and that is
    because employment contracts are private and we did not really
    have national evidence on these things.
        Senator Hirono. Do you think that a total ban on
    noncompetes, for both of you, is a good way to go, with
    allowing for some exceptions, as opposed to the kind of really
    narrowly drafted legislation that Hawaii enacted?
        Mr. Starr. I personally have no problem with executives
    signing noncompetes when they sit next to their legal team and
    they hash it all out.
        Senator Hirono. That is face-to-face, though.
        Mr. Starr. I actually have no problem with that. And I
    think the evidence we have on tech workers suggests that we
    should not have any problem with tech workers, with not these
    being banned for tech workers as well. And so for me the line
    for low-wage workers was an easy one. Moving up to tech
    workers, the arguments are a little bit stronger, but the
    evidence supports a ban in this case.
        Senator Hirono. So do people who are members of labor
    unions, do you find that they also are signing noncompete
    contracts?
        Mr. Starr. I cannot remember the numbers off the top of my
    head, but I think the answer is yes.
        Senator Hirono. So it is not as though--you would think
    that maybe the unions would be able to bargain against those
    kinds of contracts. There are a lot of issues relating to the
    ability of workers to unionize these days, so I understand. So
    generally even union workers are signing these kinds of
    contracts.
        Mr. Starr. I think that is right. There were some early
    issues in the early 1990s about whether they were mandatory
    subjects of bargaining, and I think that there was a recent--if
    I recall correctly--in 2016, there was a recent dispute where
    unions decided they would not negotiate over these bans of
    workers.
        Senator Hirono. If it is a subject of negotiation sometimes
    they are not.
        Mr. Lettieri, would you like to opine as to whether you
    think a broad ban on these kinds of provisions is better, with
    limited exceptions?
        Mr. Lettieri. Yes. Yes and yes. I think a broad ban is best
    for American workers and for the American economy more broadly,
    and I think it is best for American business as well.
        If I just may, very briefly, taking a step back, as this
    Committee knows, rates of new business formation are near
    historic lows today. There are a number of signs that economic
    dynamism, particularly post Great Recession, has been one of
    the few indicators in the economy that has failed to really
    rebound, and this has dramatic consequences throughout the
    economy.
        If we want to maintain our innovation edge, if we want to
    maintain an entrepreneurial society, noncompete reform on a
    broad basis is one of the best ways to do that, and that is why
    I believe that a presumption that workers should always be
    free, except in certain circumstances, to deploy their talents
    to everyone's benefit is the right policy approach.
        Senator Hirono. Are you referring to some kind of a study
    regarding the business formation? Can you just send that to us?
        Mr. Lettieri. Senator, yes, absolutely. There have actually
    been a number of studies on this.
        Senator Hirono. Send us the best ones.
        Mr. Lettieri. We will do that.
        Senator Hirono. Thank you.
        Mr. Lettieri. It will be mine.
        Chairman Rubio. I am going to interject briefly and then I
    am going to turn it to Senator Romney. Just a quick question.
    It seems to me that at the lower-wage level for a worker, who
    makes $40,000, $50,000, $30,000 a year, the mere existence of
    any restriction alone is enough to dissuade, no matter what the
    legalities around it may be, as Mr. Bollinger talked about, he
    couldn't afford the litigation costs. And I imagine an employer
    aware of this is not going to be excited to hire you if it
    means going to court and fighting somebody if it is going to be
    an added cost.
        So I wonder if even on some of the trade secret issues,
    anybody can file a lawsuit claiming anything, right, and if the
    litigation costs either are impossible for you to bear or make
    you unattractive for someone to hire you--sorry, the flip side
    of it is I do not think we are talking about deals here, for
    example, a very typical deal where you are the CEO of a
    company, the company sells, or you are the founder and you
    sell. But the experience I have seen in that is you do have a
    noncompete. I mean, we are not going to buy your business and
    have you open a competitor in two years. But often times they
    stay on, even if it is in an honorary role, they pay you a
    consulting fee to hang around for a few years, and so forth.
    That is a very different thing from what we are talking about
    today, right? All right.
        Senator Romney.
        Senator Romney. Thank you, Mr. Chairman. I appreciate the
    testimony of our witnesses today. I do believe that the whole
    discussion of noncompetes is an important discussion and has
    implications not only for employees but also for employers and
    the overall economy. I am not sure this is something that
    should be dealt with at the Federal level or whether, instead,
    each state should pursue this area in the way it thinks best,
    and we can learn from the experiences of different states.
        I would presume, also, that you would agree, each of you
    would agree that noncompete agreements that are primarily
    designed, or even principally designed to lock employees in, to
    keep them from being able to move to a higher-paying job, to
    improve their lot, that kind of agreement should not be
    acceptable. But on the other hand, where an agreement is put in
    place to prevent the theft or appropriation of technology or
    trade secrets, that those are legitimate.
        Is that a fair assessment? Do you have a sense of what type
    of noncompetes do make sense, because there are many that do
    not. But are there some that you think really are legitimate
    and are appropriate, or do you think virtually none are?
        Mr. Starr. I think that what we need to think about is when
    you are talking about trade secrets, what are the other
    protection mechanisms? And so a noncompete is a very strong
    protection because it prohibits the worker from moving to
    another firm, but you can have the worker sign a nondisclosure
    agreement and you can enforce trade secret laws if you catch
    them leaving. And I am not a lawyer. I do not study the--I do
    not know all the details of the various trade secret laws, as
    well as I should, probably. But my understanding is that
    noncompetes offer a little bit extra protection because they
    prohibit the move and, thus, the misappropriation of trade
    secrets in the first place. And that if you were to go down and
    try to enforce a nondisclosure agreement it might be a little
    bit more costly for the firm to do so, because it would take a
    longer time in court.
        So I do think there is a slight benefit, in some cases,
    though you should probably have some other expert testify on
    the exact details of the trade secret litigation.
        Senator Romney. Yeah. I mean, basically what you are saying
    is there is really not a legitimate reason for a noncompete,
    and you are nodding your head.
        Let me give you an example. There is a company that makes
    subsea wellheads in the oil industry. The senior research and
    development people at that company left and formed their own
    company, and introduced a whole new line of products that were
    superior to the line of products that they had sold at the time
    they were with the previous company. That caused the dramatic
    reduction in the success of the company they previously had
    been employed by.
        It would strike me that for employees of a company, the
    research and development department to leave and obviously take
    the ideas they had while they were working at one company to go
    start up a new company to compete with it was not in the
    interest of American enterprise and was not appropriate, and
    that a noncompete would therefore be appropriate in a setting
    like that.
        Do you think, no, actually, people should be free to do
    that, work at a company, come up with some ideas, in the back
    of your mind. Perhaps you have not sent them along. Maybe you
    even have seen them. But you go and start a company with those
    ideas on your own. That is--do you think that should be
    allowed? Or the other way around, that we should legally say a
    company cannot protect itself from that kind of appropriation
    of technology?
        Mr. Lettieri. I would separate the use of noncompetes from
    the ability to protect yourself from the appropriation of trade
    secrets. So to Dr. Starr's point, there are other tools that
    exist, and other remedies and legal recourses for companies
    that feel that a trade secret has been appropriated, which I
    think is very different than an employee builds upon their
    lifetime accumulation of skill and ideas and goes and deploys
    those ideas in a different context, even in the same industry.
    That is what propels our economy forward.
        And so again, I think the presumption should be that we
    want more competition, not less, even in industries where--and
    the concern from policymakers should not be what happens to the
    individual firm, outside of did they actually have a legal
    violation in the process of that transaction. In that case,
    certainly, and the courts and Congress have provided other
    tools besides noncompetes that do not have the same type of
    broad-based harm that noncompetes have.
        But in the scenario you mentioned, other than specifying
    that a trade secret had been stolen, the idea that an employee
    would leave one company and start another and compete in the
    same industry, I see as a huge benefit to the American economy
    and the overall prosperity that we should want.
        Senator Romney. I would suggest that if people feel that
    the technologies that they are developing in one company at
    great expense can then be taken and used by someone else in a
    way where they had not paid for that technology, that that does
    not encourage the economy. Yes, we do want competition, but the
    idea that people can, if you will, appropriate technology or
    know-how from one place and take it to somewhere else is not
    encouraging to the overall economy. I would disagree with you
    on that, in that perspective, and think it would be a mistake
    for the Federal Government to step in when states are perfectly
    able, state by state, to determine what is in the best interest
    of their respective economies, and we can learn from those
    states.
        Mr. Chairman.
        Chairman Rubio. Thank you.
        Senator Shaheen.
        Senator Shaheen. Thank you, Mr. Chairman, and thank you to
    each of our witnesses for your testimony. Mr. Bollinger, I
    especially appreciate your being here, and I think your story
    really tells what we are seeing happening across this country
    in terms of bias in our courts toward corporations and business
    and against workers, in too many cases.
        I want to follow up on Senator Romney's question about the
    benefits of Federal legislation versus legislation in 50
    states, and ask both of you, Mr. Starr and Mr. Lettieri, how
    you would respond to that. What are the benefits of having a
    Federal bill that addresses this versus having 50 different
    states with 50 different ways of dealing with the issue?
        Mr. Starr. Let me just say that the first one, I think,
    perhaps, most important reason is that when you cross state
    lines it becomes extremely tricky to figure out what to do with
    a noncompete that was signed in one state. There have been
    cases where a worker was working in Minnesota in biotech and
    moved to California, and he had a noncompete, and his firm sued
    him in Minnesota, and he brought suit in California, and the
    case is being tried in both places at the same time. And so you
    can imagine it gets super tricky because he could have left it
    to 50 other states and you could reach different outcomes.
        And so I think that a Federal bill would help provide kind
    of a clear set of guidelines to allow for interstate labor
    mobility.
        Senator Shaheen. Mr. Lettieri.
        Mr. Lettieri. I agree. I think, to Senator Romney's point,
    we do have states that are free to craft their own rules now.
    There are a couple of problems. One is that most states do not
    and have not. The rules that have been created, create a
    patchwork that is very hard to navigate, for firms and
    employees alike. It creates uncertainty and inefficiency in the
    economy that does not need to exist.
        And we should not look past the point that the Federal
    Government has long had a say in the fundamental relationship
    between employees and employers. It is labor market law. It is
    employment law. And so this would not be breaking new ground,
    in terms of the role of the Federal Government in setting basic
    terms. And this is such an important issue and such a
    fundamental part of the relationship between employees and
    employers that it seems obvious that the Federal Government
    should have some kind of say that standardizes at least a floor
    that then other states, if they wish, can create additional
    rules on top of.
        Senator Shaheen. And can you speak to the importance of
    enforcement and who should have responsibility for enforcement,
    and how important it is to have someone who has that
    responsibility?
        Mr. Starr. I will just say one quick point on that, which
    is that I think what some of my research has been documenting,
    and Mr. Bollinger is an unfortunate victim of this, is that
    what matters is having the contract in your employment
    agreement. It may not matter what the courts do at all, because
    you may not even get to the court. And, in fact, most of the
    time the chilling effect happens before you even enter a
    courtroom, when you get that threatening letter or when your
    new employer says they are not going to hire you anymore.
        And so I think that a Federal action that disincentivizes
    use for those workers in the first place would be really the
    most effective.
        Senator Shaheen. Do you share that view?
        Mr. Lettieri. Yes, absolutely.
        Senator Shaheen. I want to follow up on the large versus
    small business. This is the Small Business Committee, and New
    Hampshire, my home state, is very much a small business state.
    Are there any--is there any study that shows that small
    businesses have made more use of noncompete agreements than
    large businesses, or vice versa, and does it matter?
        Mr. Starr. There is some evidence that larger firms tend to
    use them a little bit more frequently, or if you work in a
    large firm you have a slightly higher chance of signing a
    noncompete, but it is not as much as you would think.
        Senator Shaheen. So it really does not have much impact.
        Mr. Starr. Well, so, the place that I will say is that
    there one study I did where we looked at new firms starting up
    and we looked at the size of new firms and how the changes in
    their growth relate to the law, and we find that in states
    where noncompetes are easier to enforce, new firms have trouble
    hiring. And new firms also tend to be smaller, of course. And
    so I think this is indicative of kind of a small firm problem,
    as well.
        Senator Shaheen. To follow up on Senator Hawley's question
    about rural versus urban areas, New Hampshire has a lot of
    small towns where there may be only one or two companies,
    larger companies, that have real opportunities for future,
    other than mom-and-pop shops. So what happens, and are there
    any studies that show the impact on rural communities versus an
    urban area on noncompete agreements? For either of you.
        Mr. Starr. You know, there is not a study--so you should
    know, this literature is relatively new, and so we are still
    learning a lot--but so there is not a study that directly comes
    to mind that says what is the effect on a rural versus an urban
    area. There is a study looking at executives, and part of it
    exploits the fact that noncompetes are maybe more effective
    when there are more competitors to go to. And they do find
    that, if I remember correctly, that the effects of noncompetes
    on executive wages is actually more negative in the less rural
    areas, so the more suburban areas.
        I am not sure that was clear, but I can send you the study.
        Senator Shaheen. No, I got it. Do you have anything to add
    to that?
        Mr. Lettieri. No.
        Senator Shaheen. And finally, just to your point, Mr.
    Lettieri, about the importance of dynamism in our economy and
    about small businesses, as I interpreted the exchange between
    you and Senator Romney, the difference that I would make with
    the point that he was trying to suggest is that I have been to
    a lot of small businesses in New Hampshire where the people who
    started those worked at large companies over a long period of
    time, and they did not take that technology with them to their
    new business but they developed ideas based on some of the work
    that they had done, and those ideas are what led them to start
    new businesses, and that has been really important to the
    dynamism within the economy.
        Mr. Lettieri. It is interesting to think about the
    counterfactual of what if noncompetes had existed in
    California, and all the world-defining innovations that would
    not have happened if the simple transaction of an employee
    being able to take their experience and ideas and go spin out
    and start their own company had never been possible.
        And so the logic of that exchange, of the scenario that
    Senator Romney set up, is identical to Mr. Bollinger's example.
    The company in question said, ``You have something that you
    took from our company, that you learned at our company, in the
    textile industry, and applied it elsewhere, at a competitor,
    and, therefore, you should not be allowed to do that.'' They
    did not substantiate a trade secret had been violated. And that
    is where, I think, the difference exists.
        It is very important that we not violate trade secrets, but
    it is also very important that we not violate the ability of
    workers to go use the skills that they have in the economy
    efficiently, and that distinction is very important in policy.
        Senator Shaheen. And that latter distinction is one of the
    things that contributes to churn in our business community and
    the dynamism of starting small businesses. Thank you very much.
        Chairman Rubio. I want to recognize Senator Young. Before I
    do, I want to interject again, since I did not use my time at
    the beginning, with just a quick commentary. It is not a
    perfect analogy, but imagine if we told members of the Armed
    Forces, ``You are going to learn a lot of interesting skills
    here but you can never, now, when you leave, use anything you
    learned in the service of your country, in the commercial
    sector.'' You cannot disclose classified information, right?
    But there is no way that--and during the period of time in
    which that worker is accruing knowledge, the company is
    accruing benefits. It is not, you know, a one-sided deal.
        Senator Young.
        Senator Young. So I thank all of you for being here. I
    thank the Chairman for his leadership on this issue, and the
    Ranking Member, and for elevating this important issue.
        There are two things I really want to make sure I give Mr.
    Lettieri an opportunity to discuss, and it has to do with your
    exchange with Senator Romney. I am going to ask you a bunch of
    questions, but two issues that I think he will probably agree
    with you on. It seemed as if there was a bit of talking past
    one another, which often happens when you are allotted five-
    minute segments, right?
        When one experiences, as he put it, a misappropriation of
    intellectual property, or a misappropriation of trade secrets,
    I think what I heard you say, Mr. Lettieri, is that is an over-
    broad and over-inclusive approach to use a noncompete to try
    and address that. We already have properly scoped legal
    mechanisms to deal with that. Is that correct?
        Mr. Lettieri. That is right, and those other mechanisms do
    not have the kind of negative externalities that noncompetes
    do, and so they are much more finely tailored.
        Senator Young. Meaning, in plain speak----
        Mr. Lettieri. Meaning that they do not depress wages, they
    do not reduce firm formation, they do not chill innovation and
    chill the labor market more broadly.
        Senator Young. Right. And with respect to leaving it up to
    the states, you very pointedly piped up that this is an issue
    of labor and employment law, which historically has been
    handled at the Federal level. What happens when you have a
    patchwork of different rules and regulations in the area of
    labor and employment law?
        Mr. Lettieri. Yeah. Again, this is not a state issue other
    than the fact that the Federal Government has just chosen not
    to have a policy in this space. So in the absence of that you
    have a vacuum that has been filled by some states, but many
    have not. And so what your resulted with is a patchwork of
    policies that are somewhat incoherent across states, that
    create uncertainty between firms and workers; jurisdictional
    questions, that when a noncompete gets challenged in court as
    to which jurisdiction it should be challenged in.
        That is all dead-weight loss for the economy and the net
    result of it, based on, in large part, the work that Dr. Starr
    has done, and many others, is that we have a patchwork of
    policies that does not serve our national interests.
        Senator Young. Right. So I have introduced legislation with
    Senator Murphy, the Workforce Mobility Act, and it limits the
    use of all noncompete agreements, except in a very few limited
    circumstances, where that makes sense.
        Given the trends that you have discussed here in this
    hearing, in your opinion, should a limit on noncompetes be
    expanded to encompass all income levels? Yes or no.
        Mr. Lettieri. Yes.
        Senator Young. Okay. And how exactly is this going to
    benefit all workers?
        Mr. Lettieri. It benefits all workers in a number of
    different ways. Let's go back to new business formation. The
    chain reaction that happens when a new business is formed is
    really important for making sure that the economy works for
    working people. More employers means more demand for labor.
    More demand for labor means better benefits, better wages for
    workers. And so when you have fewer new firms, as we are seeing
    now in the economy, you have more downward pressure on wages,
    and when you reduce that even further by allowing noncompetes
    to be so pervasive, you are just limiting the number of
    employers who are competing for workers' talent.
        So that is why expanding up and down the income level is
    important, because the higher income level and the higher skill
    level is more associated with new business formation.
        Senator Young. So, Mr. Lettieri, right now the economy is
    humming. It is red hot. We have tight labor markets. Wages are
    rising. That is a good thing, right? How can the use of
    noncompetes actually end up harming an employer in light of the
    predicate I just laid?
        Mr. Lettieri. Exactly. Well, it is already very difficult
    for employers to find the talent that they need to grow. When
    you constrain that further by putting artificial limits on
    available talent, as noncompetes do, you are getting in the way
    of employers being able to, again, win the competition for
    talent. Because in this case it does not matter if an employer
    is offering dramatically better benefits, dramatically better
    job opportunities and upward mobility. That is not a factor if
    a noncompete is in play.
        So it is not just hurting the employers, it is getting in
    the way of the fundamental competitive transaction.
        Senator Young. Okay. And getting back to the Romney
    exchange, which may make some news, right, I hope it does and I
    hope some of the counters to it do as well, that I am eliciting
    from you.
        Silicon Valley is regarded as a hotbed of innovation, of
    enterprise, of dynamism, of business creation. Do we read a lot
    of articles about the theft of intellectual property on account
    of the lack of noncompetes in the state of California?
        Mr. Lettieri. Again, if it were a fundamental issue I do
    not think we would have the natural example that we have, of
    Silicon Valley being what it is. As Dr. Starr had mentioned
    earlier, I think a lot of people point to noncompete
    enforcement or non-enforcement of noncompetes as one of the
    reasons that Silicon Valley has outpaced, say, Boston, as an
    example of kind of the hub of technology and innovation in our
    country. So it is clearly not a predicate, that you need not
    compete in order to protect trade secrets and intellectual
    property.
        Senator Young. And we have seen an outright ban on
    noncompetes in states that, in many ways, do not resemble
    California. It is not my intention to hold them up as a model
    for all lawmaking and rulemaking--the state of Oklahoma, the
    state of North Dakota--and I am unaware that they have
    significant challenges----
        Mr. Lettieri. They seem to be doing fine.
        Senator Young [continuing]. In enforcing intellectual
    property protection.
        Mr. Lettieri. That is right. That is right. We have not
    seen intellectual property-intensive companies flee those
    jurisdictions after the bans.
        Senator Young. Okay. Thanks so much.
        Chairman Rubio. Thank you. Before I recognize Senator
    Cantwell I just want one more observation--interesting analogy,
    as well. You know, this is a city in which people, the
    taxpayers, pay Members of Congress $172,000 a year, in which
    time they establish expertise in this process, they create all
    these relationships, and then they leave and get immediately
    hired. They cannot lobby for a year. They get maybe hired to
    consult on the basis of all this great information that they
    learned, and I would argue some trade secrets about how the
    sausage is made around here, so they can provide people advice.
    Maybe we should have a noncompete on the transfer of that
    knowledge.
        Mr. Lettieri. Well, if I may, imagine how much poorer
    Congress as an institution would be in terms of its expertise
    if you were not allowed to hire from each other's staffs. If a
    staffer who worked for a committee was not then allowed to go
    work for another member who offered a better opportunity, that
    would really beggar the institution, instead of accumulating
    knowledge and putting it to its best use.
        Chairman Rubio. Actually, Senator Cardin is working on
    that.
        [Laughter.]
        Senator Cantwell.
        Senator Cantwell. Thank you, Mr. Chairman, and thank the
    witnesses for being here. Washington, our state, passed a law
    that restricts noncompete agreements, so beginning in 2020,
    only employees making more than $100,000 per year, and
    independent contractors making more than $250,000 a year could
    be covered by noncompete agreements. The law limits noncompete
    agreements to 18 months for these workers unless there is a
    clear and convincing evidence from the employer.
        So as we look at Federal law, what do you think our
    necessary components, or what Federal legislation would look
    like?
        Mr. Lettieri. I think many of the components of Federal
    legislation are found in the Washington statute, which I think
    is one of the far-reaching that has been passed to date.
        So it includes disclosure requirements, it includes a
    limitation on duration, it includes a limitation on these pool
    of workers that are covered, it has enforcement mechanisms.
    Those are all characteristics that should be present at a
    Federal level as well. So it is not enough just to say let's
    ban them or make them unenforceable. You have to include all
    those different features to make the policy complete.
        Senator Cantwell. And then if somebody signs a
    nondisclosure agreement then that is honored at the next----
        Mr. Lettieri. That is right. I mean, the Washington
    statute, as many others do, makes it clear--makes it clear that
    the ban on noncompetes for certain workers does not affect
    nondisclosure or nonsolicitation or other types of arrangement,
    and those do not have the kinds of negative effects that a
    noncompete has.
        Senator Young's legislation does the same thing. It makes
    it explicitly clear that this does not invalidate those other
    forms of agreement.
        Senator Cantwell. Great. And so how do you think we inform
    people of this? Like say we did do something here federally, or
    how do you think you inform--how do you think we inform people?
    I mean, since people do not--I guess you are saying you would
    have larger awareness with the Federal laws.
        Mr. Starr. Inform them of what? Of the action on this?
        Senator Cantwell. How do you inform the public about the
    fact that they have this right, I guess, is my point? That is
    what I was saying.
        Mr. Starr. The public on this right. Oh.
        Senator Cantwell. Yeah, that people understand that that
    noncompete agreement is a contracting process.
        Mr. Starr. That is a great question. I think one of the
    issues that we have seen in many instances is that when workers
    or even individuals have contracts in front of them, whether it
    is a residential agreement, whether it is an employment
    contract, they believe that those words are law and that they
    should obey them.
        And so I think that any kind of--I mean, one idea that was
    floated around was to have kind of requirements that firms are
    not allowed to do this, and you post it kind of like OSHA
    boards. I am not sure if that is going to be the most
    effective, but those ideas have been created.
        I think that one way that states are kind of going around
    and making sure that firms do not use these is by trying to
    impose penalties, either explicit costs for firms caught
    violating it, or some states have used sort of garden leave
    provisions. A garden leave provision is when the firm agrees to
    pay the worker during the prohibition period.
        So if John was not going to work for two years afterwards,
    the firm would then have to pay some amount of money to
    compensate him for not working. And that payment, then, comes
    as a cost to the firm and may disincentivize them from using
    them with workers for whom they do not really get much of a
    benefit in the first place.
        Senator Cantwell. Or some level of transparency, yes.
        Mr. Lettieri. And I will just note, Senator Young's bill
    includes public awareness provisions as well, that I think are
    a good model to use for any kind of Federal legislation. It
    empowers the Department of Labor to do a public awareness
    campaign and make sure that employers and employees are aware
    of what the new standards would be.
        Senator Cantwell. Okay. Great. Thank you, Mr. Chairman.
        Senator Cardin [presiding]. Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Ranking Member. I want to
    thank the Chairman and the Ranking Member for bringing this
    issue forward. It is a very interesting issue. I have got mixed
    feelings about it. I am sorry I missed your opening statements.
    I was in another committee.
        Mr. Lettieri, explain to me, with respect to the federalism
    issue, what is wrong with having a patchwork of laws? We do it
    already. We do it all the time, in a system of federalism, like
    we have different insurance laws and voting laws and tort laws
    and contract laws and worker's comp laws, state by state. Every
    state is different. What is wrong with it, in this regard?
        Mr. Lettieri. Thank you, Senator. It is a very important
    question. I would say there is nothing wrong with it when a
    fundamental principle is not being violated. In the same way
    that we would not want a patchwork of child labor laws, we
    should not want a patchwork of laws that allow for a
    fundamentally different relationship between employers and
    employees on such a basic question of whether workers are free
    to go compete in an open labor market.
        And so on this particular issue--and, by the way, that
    principle would not be as important if we did not have now
    research showing just how harmful the status quo really is. So
    there is both a principle violation and a fundamental economic
    harm being inflicted that I think creates a really strong
    predicate for Federal action.
        Senator Kennedy. Again, I missed your opening statements
    and I am sorry, but I take it you are against noncompete
    clauses, Mr. Lettieri?
        Mr. Lettieri. That is correct, except in a certain set of
    circumstances.
        Senator Kennedy. Are there any arguments that you know of
    in favor of them?
        Mr. Lettieri. Yes. Most of those arguments relate to the
    benefit to employers. So if the presumption is we should
    protect, at all costs, employers' ability to hedge against
    competition, which I do not think should be the presumption,
    then noncompetes are no doubt a very effective way of achieving
    that. They do exactly what they are intended to do. They
    restrict workers' options. They reduce the incentive for
    employers to offer better wages.
        Senator Kennedy. Well, let me put it another way. Do you
    know of any beneficial reasons in favor----
        Mr. Lettieri. I was going to slowly get there, after I went
    on my soapbox.
        Some research finds that with higher-waged workers who have
    signed a noncompete that has been negotiated, which is not the
    case in most noncompetes, that there are individual benefits to
    both the firm and the worker. But those, in my view, are offset
    by the broader harms to the labor market and the economy. And
    again--so those are reasonable arguments, but they are only
    reasonable inasmuch as you are not looking at the broader
    effect of the noncompete.
        Senator Kennedy. My guess is what you just described is a
    minority situation too.
        Mr. Lettieri. That is right.
        Senator Kennedy. Generally, when you are applying for a
    job, you do not have--even in a robust economy you do not have
    equal bargaining power. I mean, you want the job.
        Mr. Lettieri. And employers knowingly exploit that
    asymmetry by offering the noncompete after the job has already
    been accepted and other jobs have been turned down. So the
    worker has much less bargaining power.
        Senator Kennedy. Dr. Starr, you have studied this issue, I
    gather. What are the pros and cons of noncompete?
        Mr. Starr. Yeah. I think when I got into this what was
    interesting to me was exactly this tension, that you have some
    people saying that noncompetes are a way to spur investment,
    because if you can be ensured that your investments are not
    going to go subsidize your competitor, you have stronger
    incentives to invest in them, much like we think of the U.S.
    patent system. You provide a temporary monopoly on a particular
    patent, and that allows the firm to capture value from it, and
    they thus have incentives to invest.
        It is the same logic for noncompetes. I think the
    difference is that noncompetes are just incredibly blunt tools
    for workers, and that that bluntness means that there is a
    propensity to overuse them in ways that they were perhaps not
    intended to.
        Senator Kennedy. Okay. Mr. Bollinger, do you have anything
    you would like to add, sir?
        Mr. Bollinger. Sir, I just know that signing a noncompete
    ruined my career, ruined me financially, and like I said
    before, I am now making about equal to what I made 20 years
    ago, because of that. So I have, naturally, very strong
    opinions against noncompetes.
        Senator Kennedy. Sure.
        Mr. Bollinger. I think they are wrong. I think they should
    be illegal. Thank you.
        Senator Kennedy. Do you think it should be done at the
    Federal level or the state level?
        Mr. Bollinger. I think it should be done at the Federal
    level, where all states have to abide by it.
        Senator Kennedy. Okay. This is my last question. Do either
    of you gentlemen know of any studies setting forth,
    quantitatively, the purported drag on the economy?
        Mr. Starr. By what metric? What are you looking for--like
    wages?
        Senator Kennedy. Wages, GDP, consumption, productivity.
        Mr. Starr. Yeah. So most of the estimates are usually
    looking at either wages or new business creation, some measures
    of innovation. Just to give you a ballpark number, in the most
    kind of systematic study we have seen so far, they find that an
    increase of enforceability of noncompetes lowers wages by about
    4 or 5 percent for everybody.
        Senator Kennedy. Okay.
        Mr. Lettieri. Another way to translate that, Senator, is
    that the effect of noncompete reform, which costs nothing to
    the Federal Government, would be equivalent to the most
    successful imaginable Federal policy boosting worker wages,
    worker mobility, and new business formation. There is no
    equivalent policy I can think of that has had that kind of
    success, and certainly not the cost benefit of a free policy
    that is simply stopping doing something rather than creating a
    new program.
        Senator Kennedy. Well, if we get involved it won't cost
    nothing, I can assure you. There will be a bureaucracy grow up
    around it. That I can guarantee you.
        Thank you, Mr. Chairman.
        Chairman Rubio [presiding]. Thank you. Mr. Starr, I
    understand you need to leave. We are almost done anyway so you
    can go ahead and catch your flight.
        Mr. Lettieri. I have a few minutes.
        Chairman Rubio. I know Senator Cardin had a follow-up.
        Senator Cardin. Just one point that has been brought up on
    enforcement, and you, I think, mentioned disincentives to
    employers. Because whatever we do, you still run into the
    situation that a company could include a noncompete clause that
    is clearly against state law or Federal law or whatever we do,
    as an intimidation. And the fact is, it is an intimidation,
    because an employee has very little capacity to challenge what
    their company is doing.
        So you talked disincentives. I would hope that you would be
    a little bit more definitive, not necessarily in response right
    now, but as we consider Federal legislation, what would be
    appropriate disincentives? You mentioned requiring the employer
    to pay during this period of time. You have also mentioned
    potential for fines.
        I think we would need some help as to what would be
    effective so that, in fact, what we do is enforced without
    requiring the employee to go through a costly litigation. As we
    saw in Mr. Bollinger's case, it sometimes is not effective. So
    if you can help us in that regard I would appreciate it.
        Chairman Rubio. Thank you. And just to wrap up, a couple of
    observations. On the disincentive part, I mean, none of these
    things are perfect. You could foresee where a firm decides we
    are not going to let anybody leave, and the way we are going to
    do it is we are going to sue anyone who leaves here. We are
    going to go after whoever hired them, and unless you are in a
    completely different industry, and we are going to say--we are
    going to claim that you stole some secret sauce that you had
    access to, and no one is going to want to hire you, because one
    thing is to hire a worker, but the lower wage, especially, they
    have got to be a really special worker to hire them and the
    litigation that is coming with them. So that is something we
    have got to think through, because no law will be perfect in
    that regard.
        I would say these are my observations on the hearing today
    and everything we have heard, and really, the goal here is the
    entrepreneurship part of our jurisdiction, and the notion and
    the fear that there is somebody out there who is working
    somewhere, is not necessarily learning some trade secret but is
    picking up ideas, and says to themselves, you know, I can do
    this business better than the person I work for. I am going to
    go out. I am going to open a competitor, and, you know, I am
    going to hustle and be successful.
        And, you know, that is where a lot of great American
    businesses came from, not because they stole a trade secret but
    because they actually thought what you were doing could be
    better, and they could not do it where you were because you
    were not interested in it. So the entrepreneurship part of this
    is a very big part of it.
        But I would say that there is, I think, some pretty, in my
    sense, broad agreement that for low-wage workers this really
    makes no sense. I mean, I would argue, some people are going to
    tell you, if you are a hairdresser, you are working--you are
    renting a chair, you are working in my shop, you are attracting
    clients with my overhead, maybe clients that I even gave you,
    and then you are going to pick up and leave and take all those
    clients with you. The response is, but during the time they
    were working there, this person was generating revenue for you,
    so there was some bargain there, right?
        But by and large, I think there is broad-based agreement
    that low-wage workers should not be subject to this. I think
    the two areas that there is debate is, number one, who else
    other than that should be covered, and whether it should be a
    Federal legislation or whether we should rely on the states to
    do it. Those are the two areas where I think we still have some
    debate internally.
        But I think--and I do not speak for everyone, but I
    certainly think that my sense is that there would be broad
    consensus that there are a bunch of workers in America who do
    not make a lot of money, and really there is no justification
    for trapping them in employment. And the impact that could have
    on them going out and starting a business, or them going to
    work for a startup, you know, who is looking for people like
    that to join.
        So your testimony today was all very, very helpful to us,
    because I really think we can build on this, and I appreciate
    the time you have given us. And unless there is anything else--
    all right. There is this little script I have to read because
    apparently the republic will collapse if I do not read these
    things.
        The hearing record will stay open for two weeks, and any
    statements or questions for the record should be submitted by
    Thursday, November 28th, at 5 p.m. And with that the hearing is
    adjourned.
        [Whereupon, at 11:33 a.m., the Committee was adjourned.]

                          APPENDIX MATERIAL SUBMITTED

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]