[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
                             
                             
      
      
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             U.S. GOVERNMENT PUBLISHING OFFICE 
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            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:]
    
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    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:]
    
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    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.]
    

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