[Senate Hearing 118-564]
[From the U.S. Government Publishing Office]
S. Hrg. 118-564
BANNING NONCOMPETE AGREEMENTS: BENEFITS
FOR WORKERS, BUSINESSES, AND THE ECONOMY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
ECONOMIC POLICY
of the
COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING BANNING NONCOMPETE AGREEMENTS AND HOW THAT
CAN BENEFIT WORKERS, BUSINESSES, AND OUR ECONOMY
__________
JULY 30, 2024
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https://www.govinfo.gov/
______
U.S. GOVERNMENT PUBLISHING OFFICE
58-712 PDF WASHINGTON : 2025
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
RAPHAEL G. WARNOCK, Georgia KATIE BOYD BRITT, Alabama
JOHN FETTERMAN, Pennsylvania KEVIN CRAMER, North Dakota
LAPHONZA R. BUTLER, California STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
______
Subcommittee on Economic Policy
ELIZABETH WARREN, Massachusetts, Chair
JOHN KENNEDY, Louisiana, Ranking Member
JACK REED, Rhode Island MIKE ROUNDS, South Dakota
ROBERT MENENDEZ, New Jersey THOM TILLIS, North Carolina
CHRIS VAN HOLLEN, Maryland CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota STEVE DAINES, Montana
JOHN FETTERMAN, Pennsylvania
Harleen Gambhir, Subcommittee Staff Director
Wesley Davis, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
----------
TUESDAY, JULY 30, 2024
Page
Opening statement of Chair Warren................................ 1
Opening statements, comments, or prepared statements of:
Senator Kennedy.............................................. 3
WITNESSES
Heidi Shierholz, President, Economic Policy Institute............ 4
Prepared statement........................................... 23
R. James Toussaint, MD FAAOS, Orthopedic Surgeon................. 6
Prepared statement........................................... 28
Hayley Paige, Small Business Founder and Wedding Dress Designer.. 8
Prepared statement........................................... 30
Additional Material Supplied for the Record
``Advancing the American Workforce'', HRPA....................... 33
Letter supporting the FTC ruling................................. 42
Letter submitted by Engine....................................... 44
Statement submitted by CLASP..................................... 65
Letter submitted by SBM.......................................... 69
(iii)
BANNING NONCOMPETE AGREEMENTS: BENE-
FITS FOR WORKERS, BUSINESSES, AND THE
ECONOMY
----------
TUESDAY, JULY 30, 2024
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Economic Policy,
Washington, DC.
The Subcommittee met at 2:30 p.m., via Webex and in room
538, Dirksen Senate Office Building, Hon. Elizabeth Warren,
Chair of the Subcommittee, presiding.
OPENING STATEMENT OF CHAIR ELIZABETH WARREN
Chair Warren. This hearing will come to order.
America is the land of opportunity. We hold tight to the
idea that every American can work hard, develop skills and
experience, and create new opportunities for themselves and
their families to have a better job and to have a better life.
But over the years, powerful corporate interests have
worked to take that freedom away from America's workers. One of
the ways they do this is through noncompete clauses. These are
terms that are inserted into the fine print of contracts that
prohibit workers from joining or starting a competing business.
Now, currently, these agreements hold back about 30 million
Americans, about one in five American workers. They affect
workers from software engineers to doctors, to hair stylists,
to doggie daycare workers.
Noncompete clauses suppress wages; they prevent mobility,
and they keep workers in dead-end jobs with no hope of moving
up.
They hurt the economy as a whole, slowing innovation and
inhibiting new business formation, and ultimately, raising
consumer prices.
Noncompete clauses hurt all workers, but they have their
worst impact on women, on non-White workers, and on workers
with less education.
These agreements are unfair and un-American, and they are
on the plain face of it anticompetitive. The whole point of
these agreements is to prevent businesses from having to
compete for workers. It's like price-fixing, but for jobs.
Bipartisan coalitions in Congress have supported
restricting noncompete clauses. And that's why I was really
pleased in April when the Federal Trade Commission finalized a
new rule to protect more than 100 million workers by
prohibiting employers from forcing their workers into
noncompete agreements.
This rule is another example of the Biden-Harris
administration acting to rein-in corporate abuse and it makes
lives better for ordinary Americans--from reducing abusive
overdraft costs to ensuring workers get the overtime pay they
deserve, to wiping out junk fees on airlines, concert tickets,
hotels, and more.
Now, with this rule, the FTC is doing exactly what Congress
authorized it to do--prohibiting unfair methods of competition.
This rule is incredibly popular. More than 90 percent of the
comments that the FTC received on the rule were favorable. And
it's no wonder; FTC analysis shows that it will increase
workers' pay by an average of about $500 a year. It will cut
health care costs by tens of billions of dollars over the next
decade. The rule will unleash innovation and economic growth,
helping create about 8,500 new businesses every year and
resulting in tens of thousands of new patents. The FTC and the
Biden-Harris administration deserve all the credit in the world
for putting this rule in place.
You heard me say it before and I will say it again: I
believe in markets, competitive markets. This rulemakes sure
that Americans can take their skills, their labor, and their
willingness to work hard into that market and get the best
possible pay and working conditions. That's how markets are
supposed to work in a free country.
So where are our Republican friends on this issue? Once
again, instead of standing up for real competition, they are
moving nearly in lockstep with the big corporations that hate
these rules.
Republicans in the House have introduced a Congressional
Review Act Resolution to try to overturn the FTC's new
noncompete rule. Of course, if it managed to pass the House and
the Senate, President Biden would veto it.
So opponents of the bill are now taking to the courts and
they are getting President Trump's judges to intervene on this
rule. The Chamber of Commerce and other corporate trade groups
have gone court shopping to put the case before an extremist
Trump-appointed judge in Texas, and they're hoping to get an
extremist ruling next month to put the whole rule on hold.
These lawsuits are the product of abuse of the justice
system to try to stop the Biden-Harris administration from
helping America's workers. The opponents of the rule are going
so far that they are even trying to have the FTC, after all
these years, have the FTC declared unconstitutional.
This is not the first time that the Chamber of Commerce and
other big money outfits have trotted out this playbook. This is
what happens when big business thinks it can get whatever it
wants from radical Trump judges. They use the courts to block
the Biden-Harris administration from enacting commonsense rules
that will help Americans and help our economy. We need to deal
with this specific case on noncompete clauses, but we also need
broader court reform to end these abuses.
As this case in Texas moves forward, another judge in
Pennsylvania has refused to strike down the FTC's noncompete
rule. The Texas case should be resolved similarly. Any
reasonable nonpartisan interpretation of the law would make it
clear that Congress explicitly gave the FTC the authority to
ban noncompetitive restraints of trade, including noncompete
agreements that keep workers from looking for a better job.
In today's hearing, we'll hear more about why the legal
effort to roll back this rule is wrong and about how, once the
rule is finally implemented, millions of workers will benefit.
With that, I turn to my Ranking Member, Senator Kennedy,
and ask him for his opening statement.
OPENING STATEMENT OF SENATOR JOHN KENNEDY
Senator Kennedy. Thank you, Madam Chair.
Welcome to our witnesses.
About 90 percent of my personal and political philosophy
is: don't hurt anyone else unless you have to defend yourself.
Don't take other people's stuff and leave me alone.
I believe in free enterprise. I believe in markets. I
believe in the ingenuity and the persistence of the American
people--and of all people, humanity.
Noncompete clauses are sort of like Senate bills--there are
some good ones and there are some bad ones. Noncompete clauses,
by their definition, are a restriction, operate as a
restriction on both the employer and the employee. So from one
perspective, they are restrictions on free enterprise.
That doesn't mean that they are inappropriate in all cases.
When it's necessary to protect business information; when it is
necessary to protect trade secrets; when those agreements are
negotiated by two parties of reasonably equal bargaining
strength, there can be a place for them, for noncompete
agreements.
They can also be abused. I don't think it's appropriate
for, for example, a fast-food restaurant--I don't know if this
example even exists, but I've heard some people allege it, and
shame on them if it's not true. But if it is true, I don't
think a fast-food restauranteur should ask entry-level
employees to sign a noncompete agreement. What's the point
other than to restrict free enterprise? That makes no sense to
me.
I think it's also very important for us and for the courts
to take a look at the bargaining strengths, relative bargaining
strength of the parties. I don't believe in contracts of
adhesion. I think that people ought to, all things being equal,
ought to be able to address these issues with the same amount
of leverage. Now, we live in the real world. I know that
balance doesn't always exist, but it's something that we have
to take a look at.
Most State law of which I'm aware requires that noncompete
agreements be reasonable. And courts, I think, at both the
State--to some extent the Federal level, but generally it's a
State issue--take a look at the length of the noncompete
agreement. They look at the bargaining strength of the parties.
They look at the terms, obviously. They look at what behavior
is being restrained. Why is it necessary to restrain that
behavior? What are the interests of the employee? What are the
interests of the employer?
And if they're reasonable and there's a legitimate purpose,
I think in most cases they--and Mitt Romney said this--in many
cases, they've been upheld.
I'm going to stay as long as I can today. I would like to
hear your testimony. I would like to ask you questions. We've
got a lot going on. I think a vote has already been called and
I'm going to have to go down and vote.
But what my friend Senator Warren said in her opening
statement, notwithstanding about Republicans, that's kind of
this Republican's point of view about noncompete agreements.
OK. Thank you.
Chair Warren. Thank you, Senator Kennedy.
And now I'd like to introduce our witnesses. First, we have
Dr. Heidi Shierholz. Dr. Shierholz is the President of the
Economic Policy Institute. She served as the Chief Economist at
the U.S. Department of Labor during the Obama administration.
Thank you for being here with us.
Next is Dr. R. James Toussaint. Dr. Toussaint is an
orthopedic surgeon who completed his medical training at NYU
and Harvard University. He currently practices in Florida.
I want to extend a very special thanks to Dr. Toussaint
because he was one of the people who helped during the Boston
Marathon bombing, and we're grateful for that help.
I also want to extend another very special thank you. I
know that you were very helpful following the earthquake in
Haiti in 2010. So thank you very much for your work.
And our third witness is Ms. Hayley Paige. Ms. Paige is a
wedding and shoe designer who also resides in Florida. She rose
to fame designing Hayley Paige dresses sold across the country
and starring on the TLC show ``Say Yes to the Dress'' before
being slammed with a noncompete that she only very recently
beat in court. So thank you very much for being here.
So I'm going to start. We'll do witness statements, and
then we'll go to our questions.
Dr. Shierholz, if I could start with you, please.
STATEMENT OF HEIDI SHIERHOLZ, PRESIDENT, ECONOMIC
POLICY INSTITUTE
Ms. Shierholz. Thank you very much. Chair Warren, Ranking
Member Kennedy, other Members of the Subcommittee, thanks for
the opportunity to testify here today.
So first, noncompete agreements are ubiquitous. Most
studies find that, roughly, one in five workers are subject to
a noncompete, and without a ban, that share would almost surely
keep rising.
To understand the effect of noncompetes on workers, it's
useful to remember that, essentially, the only source of
leverage that an individual non-unionized worker has with
respect to their employer is their ability to quit and take a
job somewhere else. That is the thing that means their employer
has to provide them a job that is competitive enough in terms
of compensation and opportunities that they're not incentivized
to leave and take another job or start their own business.
But noncompetes cutoff that source of worker leverage at
the knees. When workers do not have the freedom to take another
job, their employers simply do not have to pay them as well or
provide them as good a job. And an extensive body of research
bears that out, showing that noncompetes significantly reduce
wages.
OK. Some claim that, though noncompetes reduce wages,
they're still necessary because, they say, they boost
innovation by incentivizing firms to invest in developing
important advances. However, the evidence consistently finds
that the net effects of noncompetes on innovation go in the
opposite direction, and here's why: by preventing workers from
leaving their employers to create new business, noncompetes
reduce business formation, reducing dynamism in the economy.
And by keeping workers locked in jobs, noncompetes reduce
productivity growth. The economy runs the strongest when
workers are in the jobs that are the best match for their
skills and interests. Noncompetes keep workers from being able
to go to firms that yield the most productive matches.
The declines from noncompetes in business formation and
job-to-job mobility cause an overall decline in innovation. So
for example, studies consistently find that noncompetes lead to
significant decline in the rate of patenting, including in the
rate of breakthrough inventions.
OK. Further, banning noncompetes will likely reduce
inflation. Noncompetes increase concentration in markets for
goods and services by preventing workers from leaving their
employers to create a new business or to join other firms that
would intensify competition. And all of that increases prices.
So for example, research shows that noncompetes
significantly increase the cost of physician services. Banning
noncompetes is estimated to reduce health care costs by at
least $74 billion over the next 10 years.
It is also worth noting that employers do not actually need
noncompetes to protect trade secrets. Intellectual property law
provides businesses with significant legal protections for
trade secrets and employers are also able to use tailored
nondisclosure and nonsolicitation agreements. Provisions like
those that directly address what employers may and may not do
with company secrets allow businesses to protect trade secrets
without being such a blunt instrument that they harm
competition by taking away workers' freedom to take another job
at another firm or start another business if they leave their
firm.
OK. Some have claimed that the FTC does not have the
authority to ban noncompetes, but the FTC Act clearly states
that unfair methods of competition are illegal and it
authorizes the FTC to issue rules and regulations that prevent
their use.
And I think it's worth stepping back and just noticing
noncompetes are not trying to hide that they are contrary to
open and fair competition. It is in their name. With the
noncompete rule, the FTC is doing exactly what it was empowered
and directed to do by the FTC Act--take action to protect fair
competition.
Finally, I'll say it's worth considering who benefits from
noncompetes. Noncompetes benefit the owners of existing
businesses who want to protect their advantage by stopping new
businesses from forming and competing with them. They also
benefit existing businesses who want to pay their workers less
and prevent other firms from being able to hire them away by
offering them better jobs with better wages.
So it is not actually surprising that groups representing
incumbent business owners are fighting tooth and nail to keep
their noncompetes, but that does not mean noncompetes are good
for the country. They aren't. They are bad for the vast
majority. They are bad for economic dynamism and innovation.
They depress business formation and labor mobility. They hurt
productivity and growth. They raise wages; they shrink--they
raise prices; they shrink workers' wages. They restrict
workers' freedom.
Banning these coercive and unfair agreements is fundamental
to the FTC's mandate, and the workforce, consumers, and the
broader economy will be better off for it.
Chair Warren. Thank you very much, Dr. Shierholz. We
appreciate your testimony.
Dr. Toussaint.
STATEMENT OF R. JAMES TOUSSAINT, MD FAAOS,
ORTHOPEDIC SURGEON
Mr. Toussaint. Good afternoon, Chair Warren, Ranking Member
Kennedy, and Members of the Committee. It's an honor to be
here, and I thank you for inviting me to discuss my experience
with noncompete agreements from a doctor's perspective.
My name is Rull James Toussaint. I'm an orthopedic surgeon
at the University of Florida as of 2022. And I'd like to state
for the record that the opinions expressed herein are my own
and do not reflect the positions of UF or UF Health.
I was born in Haiti and emigrated to Florida, where I
achieved the American dream. I was the first in my family to be
accepted to college. I worked on Wall Street after college to
pay off my student loans.
I was then accepted to medical school, where I graduated
among the top of my class. And as a result, I mastered Harvard
University's orthopedic surgery residency program and then
completed an orthopedic foot and ankle fellowship.
In 2014, I joined a private practice group in north central
Florida as their only foot-and-ankle-trained orthopedic
surgeon. I was one of only two surgeons with this expertise
across a dozen mostly rural counties serving over 850,000
people.
Over the next few years, my partners and I felt the
pressures of decreasing reimbursement, coupled with the burdens
of preapproval requirements from insurers and competition from
other practices. We felt that an infusion of capital was
necessary to remain sustainable.
As a result, we entered into a purchase agreement with a
private equity company headquartered in California. The deal
closed in 2017.
Although I cannot disclose the transactions details, there
was, indeed, a noncompete clause. Per the noncompete clause, I
would be restricted from practicing orthopedic surgery within
25 miles of any facility in which the group was currently
providing medical services; any facility in which the group had
previously provided medical services; any facility in which the
group was targeted for expansion within the entire State of
Florida, and any facility the group was in discussions with
related to a potential acquisition. This noncompete was valid
for 2 years, and, of course, the group was located in multiple
States.
One might wonder why we would sign such a deal. The reality
is that the nuances of the noncompete were not known until we,
the doctors, spent hundreds of thousands of dollars in
transaction expenses related to the acquisition. We felt backed
into a corner and believed that our only choice was to proceed
with the transaction in good faith.
Unfortunately, within months after closing the deal, the
morale of the physicians and the staff declined. Instead of
cost savings, the practice's overhead expenses increased
significantly due to more layers of administrators, excessive
management fees, and millions of dollars of debt expenses.
The overhead increased so substantially that some
physicians not only did not receive a paycheck, but actually
paid to work, despite the physicians taking on all the risks of
patient care. All the while, the cost to the patients started
to rise and they complained that their quality of care
decreased.
Personally, I became disillusioned by management focused on
dollars instead of the quality of care. I eventually put in my
resignation stating my intent to leave for academic practice at
the nearby nonprofit public institution.
This decision made sense, given that the only other
orthopedic foot and ankle surgeon in the entire region was
retiring and I would be able to help educate the next
generation of doctors. Despite this, the private equity group
filed suit against me.
It did not matter to the group, to the private equity
group, that a community of over 850,000 people would not have a
specialist surgeon to care for them. It also didn't matter to
the private equity group that the university was the only
contracted provider of orthopedic care for Medicaid patients in
the community, and without me, they would have to travel hours
away for care.
And finally, it did not matter to the PE group that the
State of Florida had already enacted a special statute, Chapter
542, Section 336, stating that, if one entity employs all the
doctors within a specialty in the county, that the noncompete
is already void. It didn't matter to them.
Despite all of this, within days of my leaving the
practice, the private equity group threatened legal action to
prevent me from entering academic practice. Despite the
aforementioned Florida statute negating the noncompete, the
private equity goals were clear--to wage a prolonged legal
battle in the hopes that I would give up and leave my community
before a final judgment was made.
After an expensive 4-month dispute, a legal settlement was
finally achieved and I was able to join the university. Not
surprisingly, many patients from my previous practice told me
that they were very frustrated when they called the group
asking for me. They said that the private equity group lied to
them and stated that I had retired from medicine, which is
clearly untrue.
Because of my concerns with private equity in health care,
including their use of noncompete agreements, I joined the
Coalition for Patient-Centered Care, a group of health care
stakeholders who oppose private equity's influence over
independent physicians.
I have experienced the negative consequences that
noncompete agreements have on patients, the physicians, and
their communities. And I conclude that these restrictive
covenants negatively impact patient access to physicians, limit
the quality of care, and increase costs to all parties.
Thank you.
Chair Warren. Thank you, Dr. Toussaint, and I very much
appreciate your coming here to share your story.
Ms. Hayley Paige, you're up next.
STATEMENT OF HAYLEY PAIGE, SMALL BUSINESS FOUNDER
AND WEDDING DRESS DESIGNER
Ms. Paige. Good afternoon, everyone. This is such an honor.
Thank you so much for having me. I love my country.
I am somebody that knew what I wanted to do at a very young
age in life and I dedicated my childhood education and industry
experience to bringing women joy through wedding dress design.
And, boy, did I love it.
My dresses were in over 300 stores. I was on a show called
``Say Yes to the Dress'', and at one point, Vogue actually
named me one of the top 10 wedding dress designers in the
world. So this was my dazzling American dream.
However, my journey took a harrowing turn when I faced the
restrictions of a noncompete clause. This stifled my ability to
work; took away what I loved doing most. It left me financially
devastated and it shook my faith in the justice system.
Let me take you back to how it started. In 2011, at 25
years old, I signed an employment agreement that included a
noncompete clause, as well as an intellectual property
provision. I believed that this noncompete was reasonably
restricted within the duration or term of my employment. It
would be perfectly reasonable to not compete with the very
company that I was trying to add value to.
But there was also a disproportionate negotiation power
that many young employees and young creators are subjected to.
I felt compelled to sign that contract or I would lose my big
opportunity.
Nine years later, thousands of dresses, I attempted to
renegotiate that contract, as I felt I had outperformed. My
contract was due for a good upgrade.
My former employer sued me in Federal court, and it was
only then that I realized exactly how that contract was going
to be interpreted. Under a subsequent injunction, I was
forbidden from using my own birth name. I was also not allowed
to practice my chosen trade for a 7-year period unpaid--no
commission, no royalties. I also had to hand over my heavily
followed and personal social media accounts.
It dawned on me that securing my dream job at 25 years old
actually required me to forfeit that dream once that job was
over. Now, I refused to succumb to victimhood entirely. I chose
a creative pivot. I changed my name publicly to Cheval and I
started a new Instagram.
But the idea of having to change my trade after I had
dedicated my life to a very specific skill set, where, all of a
sudden, it felt like my livelihood became a threat to others,
was the hardest thing of everything that happened to me. Even
not being able to use my birth name, it was still worse to not
be able to practice my trade.
So I think you can imagine what happened next. I fought.
Three-and-a-half years of litigation, millions of dollars that
I didn't even have, I am now in debt. I spent every dollar I
ever made designing wedding dresses to fight for my right to
once again design wedding dresses.
I was privileged to have a devoted and incredible legal
team that went to bat for me when my financial situation ran
out. Most people do not have this privilege.
It took us two trips to the appellate court just to get my
Instagram back and prove that it was mine.
Now, the residual stress on brides was devastating for me.
I'm very close with many of my brides and they dreamed of this
moment for years--to pick the dress of their dreams from their
favorite designer, and they no longer could.
I also experienced residual stress from my store base who
invested in a designer brand from a very specific designer.
In my mind, my contract did not benefit me, my brides, or
my industry. It also didn't seem to impact positively my former
employer, who filed for bankruptcy during the litigation.
The American dream is built on the premise of what you can
do for your country. What is your contribution? And if we want
to continue to inspire innovation, tax people the way that we
do, and assure that opportunities remain accessible, we cannot
restrict people from working.
If corporations are not limited in hiring and profiting,
why are employees limited or restricted on working and earning?
In my situation, I was replaced by another designer in a matter
of months. Yet, I couldn't make a living for years.
Now, I know this testimony is from the perspective of an
employee, but I am now also a small business owner. And what
I've learned is that there are very effective legal precautions
you can take to protect your intellectual property. I now
officially own my own and I know why it is so important. There
are privacy policies, fiduciary duties. There are also ways to
impose nondisclosure agreements to effectively safeguard trade
secrets.
Imagine a world where the next great innovation is
unrealized; where the brightest minds are not in laboratories
or hospitals or sitting here in this courtroom. Just imagine
what we could be missing out on.
The irony is that this hearing is taking place in one of
the best days of competition in the world--the women's
gymnastics team finals in the Olympics. I was a competitive
gymnast for 16 years. So you can only imagine the poetry that I
am experiencing right now in this very moment.
But I can tell you first-hand that the pride and the
patriotism that you can feel when you have no cap on what
you're capable of doing, that is where the magic is. And that
is where I believe our country goes.
So to that, long live fair competition, and let the girl
design the dress.
[Laughter.]
Chair Warren. Thank you very much, Ms. Paige. That was very
powerful.
I recognize Senator Smith from Minnesota to start our
questions.
Senator Smith. Thank you very much, Chair Warren and
Ranking Member Kennedy.
And thank you so much to our testifiers here today. I am
really grateful for your testimony.
So I am very glad to see the FTC rule on noncompetes, and I
think the stories that you told, Dr. Toussaint and Ms. Hayley
Paige, really demonstrate it. To think that, with these
noncompetes, you would lose not only your livelihood, but even
your identity, because you're sort of trapped in this agreement
that in many cases, I hear over and over again, people don't
even really understand what it is that they're signing and what
long-term implications it has.
I want to just turn, first, to Dr. Shierholz. You know, as
I understand it, you testified one in five workers in this
country have been covered by noncompetes. Why is it important
that the FTC rule cover such a very broad range of workers?
Because I think maybe most Americans can sort of understand
that, if you are like a top-notch scientist working for a big
company, that you shouldn't be able to take, you know, those
trade secrets and go to another company. But that's not what
we're talking about here, is it?
Ms. Shierholz. So is this on? This is on.
Senator Smith. Yes.
Ms. Shierholz. So, noncompetes, the evidence shows that
they are not just applying to people that are high--who make
high wages, who may be the ones that are most likely to have
access to trade secrets; that they really are even prevalent
among very low-wage workers. Like there's one study that shows
that the median person who is affected by a noncompete is an
hourly worker who makes $14 an hour. So they really do run the
gamut.
And then the other thing is it's really important to ban
noncompetes, though, across the board, not just for low-wage
workers, but across the board. And one of the reasons is,
higher-wage workers, they're the ones who are actually in the
position to be the most likely to actually be able to
negotiate. They're not the 25-year-old, right?
Senator Smith. Exactly.
Ms. Shierholz. They can potentially negotiate over their
full employment package, including restrictive covenants, like
noncompetes. So I'm less worried about the wage-suppressing
effects from noncompetes among high-wage workers, but I'm
deeply worried about the other economic harms from noncompetes
amongst high-wage workers--reducing business formation; the
declines in productivity; declines in innovation; increases in
prices.
Senator Smith. Right.
Ms. Shierholz. So it is incredibly important, when we think
about the broader economic impact, that we have this very broad
band of noncompete.
Senator Smith. So I want to get to sort of follow up on
that. Because I think we could hear from Dr. Toussaint and Ms.
Hayley Paige about kind of the impact that this had on them.
And I am thinking about my home State of Minnesota. In
2023, the State passed legislation to ban new noncompete
clauses in employment agreements. And with that action, it
became the fourth State to prohibit these clauses--a very
important step forward.
Interestingly, the Minneapolis Fed says, as you were
testifying, they expect that this change will support worker
mobility and also yield other economic benefits, as we've been
talking about.
But what was really interesting is, as they talked with
lower- and middle-wage workers--so maybe people just getting
started out; people who were not at the senior executive level
who had worked under noncompetes--here's what they found: that
the stress and anxiety were common experiences for workers, as
they struggled to kind of figure out, come to terms with what
they had agreed to.
There's a really interesting example of that with a
cosmetologist. A cosmetologist leaves her employer. She was
very careful not to tell her old clients that she was leaving
and not--know where she was going to work next. She was told,
like, you can't even accept those clients again, unless you're
providing a different service. Like you're doing their hair
instead of doing their makeup.
And so some of those clients came to her, and then her
previous employer reaches out to her and says, ``Hey, stop it.
You can't do any work for any of those people at all going
forward.'' And, of course, this creates huge worry and anxiety
for her.
I mean, how common do you see--and this is maybe for any of
you--how common do you think it is, this sort of level of
intense worry and anxiety that this cosmetologist experienced,
according to the Minneapolis Fed?
Ms. Shierholz. I'm happy to go first. I will----
So it's very, very common. And one of the things that sort
of underscores this is that noncompetes actually have a
chilling effect on worker mobility, on business formation, even
in States where they are not enforceable. The very existence of
a noncompete actually deters workers from leaving a job, from
forming a new business.
Senator Smith. You just don't feel like you have as much
mobility.
Ms. Shierholz. For the reason that you said, rightly, the
threat. Litigation is incredibly expensive, both financially
and otherwise, and it has--just the threat of that is actually
what businesses use to enforce their noncompetes----
Senator Smith. Right.
Ms. Shierholz. ----rather than, oftentimes, rather than
lawsuits themselves.
Senator Smith. Thank you.
I know I'm out of time, Madam Chair.
Senator Kennedy. Thanks, Tina. Thanks, Tina.
Dr. Toussaint, you're an orthopedic surgeon, is that right?
Mr. Toussaint. That is correct.
Senator Kennedy. OK. Where did you go to med school?
Mr. Toussaint. I went to medical school at NYU, sir.
Senator Kennedy. OK. And you were, I think you said you
were at the top of your class?
Mr. Toussaint. Yes, sir.
Senator Kennedy. And then you trained at Harvard?
Mr. Toussaint. That is correct.
Senator Kennedy. And then you joined other orthopods in a
practice, right?
Mr. Toussaint. That is correct.
Senator Kennedy. How many orthopedic surgeons were in your
class--were in your practice rather?
Mr. Toussaint. I don't recall the number of orthopedic
surgeons specifically, but there were approximately 25 partners
within the group.
Senator Kennedy. OK. And you were a partner?
Mr. Toussaint. Yes, sir.
Senator Kennedy. OK. And a private equity company came in
and said they wanted to buy you, is that right?
Mr. Toussaint. That is correct.
Senator Kennedy. And you and partners sold, right?
Mr. Toussaint. That is correct.
Senator Kennedy. And they paid you a bunch of money, right?
Mr. Toussaint. They paid me some money, sir, that is
correct.
Senator Kennedy. Yes. How much did you walk away with?
Mr. Toussaint. I walked away with nothing.
Senator Kennedy. No, when you--when they bought your
practice, you were a partner; you were paid, right?
Mr. Toussaint. Right. At that point, sir, I did not walk
away, but I was----
Senator Kennedy. Well, I didn't--strike the ``walk away.''
How much----
Mr. Toussaint. OK.
Senator Kennedy. How much did you personally gain from the
sale to the private equity group?
Mr. Toussaint. I'm not allowed to disclose the details of
the transaction, sir.
Senator Kennedy. Was it over--why not?
Mr. Toussaint. Because that is part of the transactions
restrictive agreement, sir.
Senator Kennedy. Was it over a million dollars?
Mr. Toussaint. I'm not allowed to say, sir.
Senator Kennedy. Was it over $2 million?
Mr. Toussaint. I'm not allowed to say the amount.
Senator Kennedy. It was a lot of money, though, wasn't it?
Mr. Toussaint. I do not believe it was worth my freedom,
sir.
Senator Kennedy. But you did at the time?
Mr. Toussaint. I did not, sir.
Senator Kennedy. OK. Why did you sign the agreement?
Mr. Toussaint. Because it was, for the lack of a better
term, I was compelled to sign the agreement in order to fall in
line with the group, sir.
Senator Kennedy. Here's why I think you signed the
agreement--and I don't mean to offend you.
Mr. Toussaint. It's OK.
Senator Kennedy. I've seen these kind of transactions
before. This has gone on all over the country.
Mr. Toussaint. That is correct.
Senator Kennedy. I think the private equity group came in
and offered you and your partners a huge sum of money--in the
millions. And I think you took it. And I think, later, you
regretted it and you wanted out of the deal. And I think that
violates the freedom of contract. And I will bet--no offense,
Doctor--but I will bet that you wouldn't be willing to give
back the millions of dollars that you took away from the sale
in order to get back your freedom to practice.
Mr. Toussaint. Can I respond?
Senator Kennedy. Sure.
Mr. Toussaint. If I may respond, thank you for the
opportunity to respond to your question, sir.
I have to say that, number one, I was not in favor of the
sale. That's number one.
Senator Kennedy. Mm-hmm.
Mr. Toussaint. And then number two, I have to disagree with
your final statement--without giving away any details. But I
can say, in my personal experience, that is false, sir.
Senator Kennedy. OK. You took the money, though, didn't
you?
Mr. Toussaint. The thing that I disagree with, sir, is
whether or not I gave it back.
Senator Kennedy. Yes, but did you take the money?
Mr. Toussaint. I gave it back, sir.
Senator Kennedy. You gave back all the money that the
private equity group paid you?
Mr. Toussaint. As part of the----
Senator Kennedy. Is that your testimony?
Mr. Toussaint. As part of the settlement, I have to say
that I had to buy out of the noncompete.
Senator Kennedy. Yes. I don't want to play games, Doc,
but----
Mr. Toussaint. Yes, sir.
Senator Kennedy. ----when the private equity guys came in
and said, ``We want to buy you out,'' you might have disagreed
with your partners, but it sounds like they outvoted you.
Mr. Toussaint. That's correct.
Senator Kennedy. You could have left the practice then. You
chose not to. You chose to take the money, did you not?
Mr. Toussaint. If I chose to lose--to leave the practice,
sir, I would have had to leave----
Senator Kennedy. I understand.
Mr. Toussaint. ----the State.
Senator Kennedy. I get that. But you took the money, did
you not?
Mr. Toussaint. Yes.
Senator Kennedy. OK. Thank you.
Doctor, let's suppose that Elon Musk decided to leave
Tesla; General Motors hired him away; said, ``We'll pay you $50
billion a year because we, General Motors, are sucking wind,''
and they are. ``But if we sign you up, we want an employment
contract and we're going to show you all our intellectual
property. And we're going to insist that you sign a noncompete
agreement.''
Now, you've got General Motors. You've got Elon Musk, one
of the wealthiest, if not the wealthiest, people in the world.
Why should those two not be allowed to negotiate an employment
contract, including the noncompete agreement?
Ms. Shierholz. As I explained to Ms. Smith, I am less
worried about wage-suppressing effects of noncompetes on very
high-wage workers. Obviously, Elon Musk would be able to
negotiate a noncompete with a new employer. He has an
incredible----
Senator Kennedy. Would you have any problem saying that's
OK?
Ms. Shierholz. There are other options for key-end----
Senator Kennedy. Yes, but would you have a problem----
Ms. Shierholz. I would have a deep problem with saying
that's OK. Because what we're talking----
Senator Kennedy. Mm-hmm. You're just against all the
noncompetes?
Ms. Shierholz. Because of their effects on the economy;
their effects on, negative effects on workers; negative effects
on consumers, and negative effects on the economy more broadly.
Senator Kennedy. Well, I just don't think you're very
objective. I don't think you're a very objective witness.
It's been my experience that most of these issues, there
are always two sides. And no offense, you're entitled to your
opinion. I enjoyed listening to you, but I can tell from your
breathless presentation that you just speak passionately about
this, and I respect that. But I think you're kind of blinded by
your ideology. That's just my point of view. But I thank you
for being here.
And I went over. Give Tina more time.
[Laughter.]
Senator Kennedy. Because she stayed within her limits and I
went way over. And I've got to go vote.
Chair Warren. All right. Thank you.
So nearly 30 million people, as you talked about, Dr.
Shierholz--since I tend to think you are driven by data, and
that's what's important here--are trapped in noncompete
agreements. Corporations use noncompete agreements to hold
workers hostage. It prevents them from either starting a
competing business or going to work for another employer.
So a worker who has a noncompete faces two bad options:
stay stuck in a job that you really want to leave or upend your
life to break free from the noncompete by moving away from your
current job, changing your career, leaving the workforce, or
risking an expensive years-long battle in court.
I believe that workers should have the freedom to switch
jobs. They should be able to seek higher wages, better working
conditions, and if they so choose, to start their own
businesses. But big businesses want to control workers and
stifle competition, even if it hurts our economy as a whole.
Dr. Toussaint, you had to sign a noncompete agreement when
your medical practice was bought by a private equity company.
And can you just say a little more--you talked about this a bit
in your opening statement--about how broad this was? This was
not a noncompete that said, ``You can't go right next door and
open the same practice under almost the same name.'' How broad
was your noncompete? What all did it cover?
Mr. Toussaint. Thank you for the question.
It's important to note that the private equity group at the
time was located in three States: Colorado, Arizona, and
Florida. My noncompete specifically said that I would be
restricted from practicing orthopedic surgery within 25 miles
of any facility in which they are doing business; any facility
that they had previously done any business; any facility that
they are currently targeting for expansion within the entire
State that I am currently living in, which is Florida, and then
any facility that they have had discussions with and thinking
of acquiring in the future. And this would be valid for over
I'm sorry--approximately 2 years. So we're talking three
States.
And in my specific location, at the time I was one of two
surgeons covering treatment, specialized treatment, for over
850,000 people, most of which are within rural counties.
Chair Warren. OK.
Mr. Toussaint. I thought that was insane.
Chair Warren. All right. So they have barred you,
basically, from practicing medicine in any of these three
States. And I detect from the way they wrote it, in case they
were thinking about any other States, you would also be covered
in those.
But I take it, it was more than just a prohibition on going
into private practice. When you were offered a job at a
publicly funded academic hospital, what happened? Can you say
again about what happened when you tried to accept that job?
Mr. Toussaint. Right. Unfortunately, as part of their
agreement, they wanted me to give a copy of the employment
agreement and noncompete clause to every employer that I was
having a discussion with.
Chair Warren. Right.
Mr. Toussaint. So that's essentially like a scarlet letter
or, like, basically a mark against me to say that, ``If you
want to hire this doctor, despite his specialized training,
you're going to have to go through us. And we are in multiple
areas across the United States.''
Chair Warren. Right. And so now, let's talk about what ``go
through us'' turned out to mean. In fact, you were able to go
become a teacher of other doctors, which is, obviously, not a
direct competition originally. So calling this a noncompete, it
shows how much it is stretched out in terms of how much it
restricts you from doing.
But what was the consequence of the ``you have to go
through us'' part of this contract? How did you, ultimately,
end up going to work for the university?
Mr. Toussaint. Thankfully, the university and the community
needed me more than they wanted me out of town. I,
unfortunately, had to engage a number of community leaders,
including the NAACP, and a lot of my patients, to go and
support me in this effort to be able to work. If I didn't do
that, I would have to relocate out of the State, and I would
have missed out on a number of collaborations within the
university.
Chair Warren. You know, I just want to say, we talk about
what happens to an employee who is stuck in one of these
noncompetes, but you have given us a perfect example of how
those noncompetes end up hurting communities; in your case, end
up hurting patients, others that you serve.
And in this case, I just want to underscore communities are
served now by the more than 37 percent of physicians across
this country who are currently bound by noncompetes. So unless
you go through the person who owns that contract, these are
whole communities that could lose access to the physicians that
have served them so well.
So you had folks on your side who were able to weigh-in, so
that you, ultimately, were able to go to the university.
Ms. Paige, let me turn to you. Your former employer used a
noncompete to keep you from designing wedding dresses, whether
it was under your name or some other name. Can you just say
something about what that meant, both for you and for your
brides?
Ms. Paige. Thank you for your question, Senator Warren.
It was devastating and disheartening. I am in an industry
that relies on an emotional purchase and there is an authentic
connection made when saying yes to the dress. And to have that
tarnished or severed is almost as if we're putting a veil over
what's really happening.
And in my experience, it was truly difficult to imagine how
you could communicate and make that connection to a bride. Not
only I couldn't express myself creatively in the way that I
thought I could, but I couldn't even use my name or practice
the trade.
It was interesting, I think, too, from the business
perspective. Because we are a wholesale business and all of
these stores had invested specifically in a designer
collection. And so when the designer was no longer behind the
dresses, they were affected. They felt the residual stress of,
how do I explain to the consumer and the brides coming in the
doors that this dress no longer has the Hayley Paige behind it?
And obviously, when you invest that kind of money in your
business, and you're unable to sell the merchandise or feel
ethically icky in doing so, it creates a really big void in the
marketplace.
Chair Warren. Right. So hard on patients; hard on brides.
Hard on the other small businesses that have built up around
you and your brand, wanting to sell those Hayley Paige gowns.
Can you just say one more word about that? I thought about,
when I first heard about your story, what it must feel like if
you're a pianist and you're not allowed to play the piano; if
you're a painter and you're not allowed to paint; if you're a
wedding gown designer and you have been told you cannot make
wedding gowns. There are other things you can do in life, but
that has been crossed off your list for years. Can you just say
a little bit about how that feels?
Ms. Paige. Yes. Thank you for your question, Senator
Warren.
It was soul-crushing. But what's interesting about my case
is that it was challenging my identity from three different
factors. I was unable to use my birth name; I was severed
connection to my social media community, and I was withheld
from my trade. Of all three of those things that are extremely
hard to wrestle with and digest, not being able to practice my
trade was the most emotional and hard to overcome. And in that
moment, I had realized how much of my identity came from my
craft. And I think when you devote, you devote yourself to a
craft, part of you becomes that craft. And it really did feel
like a severing of who I was.
And I'm so grateful, of course, for the support I received,
but it was also particularly devastating to feel the confidence
and the height I was at in my career--not very many people can
perform at that level. And that is something that should be
celebrated.
And as a woman who struggles with insecurity, to feel like
you're really good at something, but you're not allowed to do
it, and then you have these amazing women that want to see you
do it, but then you can't deliver, it's emotional and
devastating.
Chair Warren. So, Dr. Shierholz, you've just heard from two
people who have lived through experiences with noncompetes.
Each of them has fought back and they have mustered communities
around them and been able to hit back. But talk just a little
bit about the effect of these noncompetes across our economy.
Ms. Shierholz. Yes. Yes, the things that Ms. Paige and Dr.
Toussaint experienced, they're just all too common. Noncompetes
restrict workers' ability for starting a business; for
practicing their craft in their community; for taking another
job in their community. And economywide, when you put the data
to it, what you find is that reduces business formation; it
reduces worker mobility, and then those things reduce
productivity. They reduce innovation. They increase prices, and
they reduce workers' wages.
So we can see how this played out in these folks' lives,
and then when you look more broadly at the economy, it's just
incredibly harmful on all measures.
Chair Warren. Well, I'm very grateful to you two for
telling your stories, and very grateful to you, Dr. Shierholz,
for just describing or putting the context all across our
economy.
The Biden-Harris administration has taken historic action
to ban noncompete agreements, and right now, it is fighting
back against the Chamber of Commerce and these giant
corporations that continue every day to profit off noncompete
agreements.
Now, one of the things I want us to turn to now--I'm just
going to give myself a second round of questions here, since I
don't have anyone competing with me for this time.
[Laughter.]
Chair Warren. I want to talk about what the Biden-Harris
administration is doing here and how it is a game changer to
ban noncompetes. By giving workers the freedom to move jobs and
to start new businesses, employers are going to have to change
what they do. They're going to actually have to compete for
workers.
Workers' earnings we believe will increase collectively by
about $400 billion over the next decade, according to the FTC.
A typical worker, it would be about $500 more that that worker
could take home. And the American economy will be more dynamic
and innovative with about 8,500 more new businesses and tens of
thousands more new patents, if people can get out of these
noncompetes and go out and either start their own businesses or
go into business with someone else, or work for someone else.
We've get this massive economic boom because the FTC has
designed the ban to be extremely simple. It says no new
noncompetes at all. It's not fuzzy; it's not fancy. None.
Existing noncompetes can be enforced only for the most senior
executives. So good for workers; good for the economy, but big
corporations are unhappy about this rule.
So what they say is they can do a rule, but they want a
rule that is narrower and more complex--more like Senator
Kennedy was talking about on, well, maybe a case here; maybe a
case there, but a lot of very complex rules about how to make
that work.
Dr. Toussaint, you struggled with a noncompete agreement in
Florida, where you live, but Florida already has a law that
says a doctor cannot be bound by a noncompete if in their
county all the doctors in their specialty work for the same
employer. So I can't think of a law more specifically designed
to address your specific issue. Why didn't that law just permit
you to get out of your noncompete without any further question?
Mr. Toussaint. Right. Thank you for the question.
Number one, it's important to realize that this private
equity company was not based in Florida. And their tactic is to
file suit outside of their jurisdiction and outside of my own
jurisdiction. So the plan is to wage a suit away from where we
both live and make it as long and as expensive as possible to
the extent that I would give up and I would walk away before a
judgment is even rendered.
And so a scenario like that, you can imagine that the
doctor's resources would not be as sufficient as the private
equity firm's resources, and they could run it dry. Even
though, eventually, I might win, it's unclear if I would even
last that long.
Chair Warren. So part of the problem we've got here, then,
is the litigation itself is expensive and they have found ways
to make it even more expensive.
I take it, Ms. Paige, that that was what you ran into?
Ms. Paige. Precisely.
Chair Warren. Yes, just drive up the costs and grind you
down into the dirt.
So the threat of the noncompete is big and important. It's
also a question of who's going to be on your side to fight
this. Who had to pay your legal bills, Ms. Paige? Who was
there?
Ms. Paige. Unfortunately, I tapped out.
Chair Warren. That was you, right?
Ms. Paige. Yes.
Chair Warren. And Dr. Toussaint?
Mr. Toussaint. The same here.
Chair Warren. You had to bear your own legal bills.
So what the FTC has said is we're going to have a very
simple rule. It's going to be a nationwide rule. You don't get
to go sue in some other State and think you can avoid some
local rule.
But it's also the case that the FTC can enforce it as an
unfair practice, which means, instead of being out there all by
yourself, you will actually have someone on your side. That's
the idea behind this.
Yes, I see you smiling, Dr. Toussaint. That sounds like a
good thing.
You know, I want to point out one more thing before we
leave this. And that is that the FTC's noncompete ban is very
popular. Polls show that an overwhelming proportion of
Americans and a majority of small business owners support the
FTC's rule. In fact, as you know, when the FTC is about to put
a rule in place, it's still a proposed rule, they invite public
comment. They got 25,000 comments on the noncompete rule.
And I just want to say, not everybody sits around in the
evening and says, ``What can we do tonight? I know, let's go do
a noncompete rule comment on the FTC website.''
[Laughter.]
Chair Warren. Of those 25,000 comments, 24,000 came from
individuals and businesses who said, ``We want to have
meaningful noncompete clauses. This is valuable to us.'' And
many, many people went on the FTC website to tell their own
stories--very much like yours, Ms. Paige; very much like yours,
Dr. Toussaint--to talk about just how challenging it was when
they got hit with a noncompete.
And how many people just gave up? They did not have the
money for lawyers. They simply could not go forward. So they
stayed in really horrible jobs.
At this point, I'm going to pause and see if Senator Van
Hollen would like to ask some questions.
Would you like to do that?
Senator Van Hollen. Yes, thank you, ma'am.
Chair Warren. Good. Senator Van Hollen.
Senator Van Hollen. Thank you, Madam Chair, and thank you
for holding this hearing.
I thank all of you for your testimony. As you know, we're
bouncing back and forth between hearings, but I am really
grateful for all of you being here to tell your stories.
And I do want to recognize the good work of FTC Chair Lina
Khan and her leadership in advancing the rules to address the
issue of these noncompete agreements. Because I think all of us
recognize that the original idea behind, you know, noncompete
agreements was people have really the crown jewels, the
secrets, right, of a particular company and you signed an
agreement to make sure that you can't use that intellectual
property, so to speak, in another job.
But now, we find out that 30 percent of noncompete
agreements affect workers earning less than $13 an hour and go
way beyond what was ever intended for noncompete agreements.
So, Dr. Shierholz, I would like, if you could, to talk a
little bit about how noncompete agreements affect workers who
are just starting out in their careers. Right? This is
impacting individuals at young ages and inhibiting their
ability in many ways to go up the career ladder and find new
opportunities. Could you just talk broadly about that?
Ms. Shierholz. I can. Hayley's example is the perfect
example of how these can just lock in young people.
But what we do know is that banning noncompetes will raise
the lifetime earnings of young workers by raising their wages
and by reducing prices. And I do want to just say that some
people will claim that, without noncompetes, businesses won't
do training, and then that will reduce the long--you know, that
will have negative long-term wage effects.
So the evidence shows that that is not true. There's good
studies showing that, like, people who start a job in a State
that strongly enforces noncompetes have reduced earnings for
more than 8 years compared to other workers. So there's
offsetting factors, but, on net, workers--and that goes for
young workers as well--are made worse off by noncompete
agreements.
Senator Van Hollen. Well, thank you. Thank you for that.
And, Dr. Toussaint, again, I apologize if this has already
been covered. I was reading about your story and your personal
experience as a physician subject to a noncompete agreement.
Obviously, that has a harmful impact on physicians, but it
also, of course, has a harmful impact on all the patients who
don't have access to the services of physicians like you.
So could you just talk a little bit about how these
noncompete agreements interfere with a patient's ability to get
care and the continuum of care that they need?
Mr. Toussaint. Thank you for the question, Mr. Van Hollen.
It's fair to say that patients follow their physicians.
They don't follow the company name or the clinic's brand. They
follow the doctor.
I was one of two subspecialist orthopedic surgeons in an
area of northern Florida where 850,000 needed to be served. If
I was driven away and the other surgeon was left--and by the
way, this other surgeon was nearing retirement--we would have
had 850,000 people without a subspecialist to train them--I'm
sorry--to treat them. They would have to travel hours away to
get their care.
They did not come to see me because I was under the
umbrella of a private equity company. And, in fact, the private
equity company was not even in the area. They're not even in
the State. They were there for me. And so if I would have had
to leave, these patients would have had no one to care for
them.
I look forward to a Federal ban on these noncompetes
because it does impact the patient's ability to get care. It
impacts my ability to care for my patients and to live in an
area that I have grown and loved. And ultimately, it raises the
cost for everyone. And I think that this needs to be addressed.
Senator Van Hollen. Thank you. Thank you for addressing
both the direct access of care to specialists that people need,
and then obviously the impact on cost.
Ms. Paige, in our remaining time, I had a little bit of a
chance to review your case and the lawsuit, and it's really
outrageous what happened, but also a very good example to bring
before the Committee.
And you've probably covered this with respect to your
specific case, but could you also talk about how the noncompete
agreements, like the kind that attempted to restrict you, and
the lawsuit threaten the ability of young entrepreneurs to
startup new businesses, something that you would think we would
want to encourage?
Ms. Paige. Thank you for your question, Senator Van Hollen.
I believe this strips away the pursuit of entrepreneurship
because many young employees and young, hungry creatives are
not in a position to negotiate for themselves, and they may
agree to something at the time that sounds quite exciting and
like the opportunity of a lifetime. But as sweat equity is put
in and circumstances change, it can impact the way the contract
is read.
In my case, it was, in my opinion, it was weaponized. And
one of the reasons I strongly believe they should be banned is
that, if you do allow some but not others, it still opens the
gateway for litigation, which can financially ruin any
individual, but it can also hurt small businesses and
corporations.
So I find that the solution to the problem is not through
restriction or a scarcity mindset. It's through educating on
other legal resources to protect your business, especially as a
young entrepreneur looking to protect as you go, but not limit
yourself.
Senator Van Hollen. Thank you.
Really, thank all of three of you for your testimony.
And, Senator Warren, thank you for pulling together the
hearing.
Chair Warren. You bet. Thank you, Senator Van Hollen. We
appreciate your coming by and asking these questions.
So I just have one last question I want to take a look at.
You listen to stories like Dr. Toussaint and Ms. Paige and you
say it just seems so obvious that we should ban these, and that
we should not ask people to litigate them, even when they've
got a rule that looks like it applies to them. Let's just get
rid of them overall.
But right now what we've got is a lawsuit ginning in the
Chamber of Commerce and a handful of giant corporations are
trying to sue the FTC to prohibit them from going forward with
this ban.
So, Dr. Shierholz, we've talked about whether or not
there's really any legal basis for it. I think that the
authorizing statute for the FTC makes pretty clear that the FTC
can do this.
But the Chamber of Commerce and these big corporations have
done a little judge shopping and they've gone down to this
Trump-appointee judge down in Texas and are trying to fight
this.
So my question to you is why is the Chamber of Commerce,
why are these big corporations spending so much money to try to
block the ban on noncompete clauses?
Ms. Shierholz. It's because of who they represent. They
represent business owners, and often very big business owners,
and those are the ones who actually benefit from noncompetes.
They benefit because they can protect their position by keeping
other people from being able to form a business who then
compete with them.
They benefit because they can pay their workers less and
prevent other businesses from being able to hire away their
workers by offering them better jobs. So they are actually much
better off with noncompetes.
And so it's totally reasonable why these business groups
are fighting tooth and nail to keep their noncompetes, but that
does not mean that they're good for the economy. It does not
mean they are good for the country. They are not. They are bad
for the vast majority.
Chair Warren. Right. I think your point is a really strong
point. It's not only that they want to be able to treat their
workers however they want to treat their workers, and all the
worker can do is just say, ``OK, I won't work at all.'' That,
obviously, is not a solution. But that it's also a way for
these giant businesses to make sure they don't have any
competition----
Ms. Shierholz. Yes.
Chair Warren. ----that the Hayley Paige wedding designs are
not out there competing with whatever business they want to
have in the weddings space; that Dr. Toussaint is not working
with other doctors to provide alternative medical practice and
an alternative approach to it; that the private equity group
that set this up wants to continue to reap all the profits of a
noncompetitive market. And that that's a key part of what's
going on here.
I just want to say again how much I appreciate your
bringing this forward and telling these stories, so that people
who may not have ever have had a noncompete clause, or worse
yet, may actually be subject to a noncompete clause, but will
not discover it until the day comes that they want to go work
somewhere else, or they want to start their own business, or
they've got some terrific idea and want to link up with a
couple of partners and go build something new, and discover
that they're not able to do that.
I so appreciate what the FTC and the Biden-Harris
administration is doing to just level the playing field; to say
that anyone who goes to work can go to work. We can have all
the rules we need about not disclosing confidential information
or taking someone else's intellectual property, but as for your
own labor and how you want to work, and what you want to do,
that's open and you can take that labor where you want to go
and build what you want to build. That is the American way.
So thank you very much for being here. I'm grateful to you
for coming to this hearing.
Questions for the record are due 1 week from today. That's
Tuesday, August 6th.
For our witnesses, if there are additional questions, you
will have 45 days to respond to any of those questions.
And with that, this hearing is adjourned.
[Whereupon, at 3:41 p.m., the hearing was adjourned.]
[Prepared statements and additional material supplied for
the record follow:]
PREPARED STATEMENT OF HEIDI SHIERHOLZ
President, Economic Policy Institute
July 30, 2024
Chair Warren, Ranking Member Kennedy, and Members of the
Subcommittee, thank you for the opportunity to testify today on the
benefits to workers, businesses, and the economy of banning noncompete
agreements.
My name is Heidi Shierholz, and I am an economist and the president
of the Economic Policy Institute (EPI) in Washington, DC. EPI is a
nonprofit, nonpartisan think tank created in 1986 to include the needs
of low- and middle-wage workers in economic policy discussions. EPI
conducts research and analysis on the economic status of working
America, proposes public policies that protect and improve the economic
conditions of low- and middle-wage workers, and assesses policies with
respect to how well they further those goals. I previously served as
Chief Economist at the U.S. Department of Labor during the Obama
administration.
Noncompete agreements are clauses in employment contracts that
prevent workers from going to work for, or starting, a competing
business within a certain period of time after leaving a job. Under the
Federal Trade Commission's (FTC's) noncompete ban, employers will be
barred from asking any new workers to sign noncompetes, and existing
noncompetes would be made unenforceable for the vast majority of
workers. Today I will highlight the importance of the rule by
discussing the ubiquity of noncompete agreements and describing the
effects these agreements have on wages, business formation, economic
dynamism, labor mobility, productivity, innovation, and prices. I will
also discuss options firms have to protect trade secrets without
noncompetes, and the FTC's authority to ban noncompetes.
Noncompetes Are Widely Used
Noncompete agreements are ubiquitous. Many studies of workers find
that roughly one in five workers are subject to noncompete agreements
(see, for example, Starr, Prescott, and Bishara (2020);
Balasubramanian, Starr, and Yamaguchi (2023); and Rothstein and Evan
Starr (2021)). \1\
---------------------------------------------------------------------------
\1\ Evan P. Starr, J.J. Prescott, and Norman D. Bishara,
``Noncompete Agreements in the U.S. Labor Force'', Journal of Law and
Economics 64, no. 1 (October 2020); Natarajan Balasubramanian, Evan
Starr, and Shotaro Yamaguchi, ``Employment Restrictions on Resource
Transferability and Value Appropriation From Employees'', January 2023;
Donna S. Rothstein and Evan Starr, ``Mobility Restrictions, Bargaining,
and Wages: Evidence From the National Longitudinal Survey of Youth
1997'', November 2021.
---------------------------------------------------------------------------
My 2019 study with Alexander Colvin finds that more than one out of
every four workers is subject to noncompete agreements. Using a 2017
survey of a random sample of private-sector businesses with 50 or more
employees, Colvin and I found that almost half (49.4 percent) of
businesses required at least some employees to sign a noncompete
agreement and almost one-third (31.8 percent) indicated that all
employees were required to accede to a noncompete as a condition of
employment. Based on these data, we estimate that at least 27.8 percent
are subject to noncompete agreements. \2\ The higher share subject to a
noncompete found in this survey compared with the other surveys cited
above could be due to the fact that ours was a survey of business
establishments, while the others are surveys of individual workers.
While businesses know whether their workers are subject to noncompete
agreements, workers are often asked to sign a noncompete on the first
day of work when they are dealing with a great deal of administrative
paperwork, and as a result often do not know or remember they are
covered by a noncompete until they try to leave their job, and thus are
likely to underreport being subject to them.
---------------------------------------------------------------------------
\2\ Alexander J.S. Colvin and Heidi Shierholz, ``Noncompete
Agreements: Ubiquitous, Harmful to Wages and to Competition, and Part
of a Growing Trend of Employers Requiring Workers to Sign Away Their
Rights'', Economic Policy Institute, December 2019.
---------------------------------------------------------------------------
It is important to note that noncompete agreements are not limited
to high-wage workers in knowledge-sensitive occupations and industries.
My 2019 research with Alexander Colvin found that more than a quarter
(29.0 percent) of private workplaces that had an average wage of less
than $13.00 per hour used noncompete agreements for all their workers.
\3\ Michael Lipsitz and Evan Starr (2021) note that ``while
[noncompetes] are frequently assumed to occur only in high-wage jobs.we
find that the modal worker bound by a [noncompete] is paid by the hour,
with median wages of $14.'' \4\ And in their analysis of private-sector
workers in 2017-2018, Rothstein and Starr (2021) reported that 14.4
percent of workers who earned less than the equivalent of $20 per hour
and 14.7 percent of workers with less than a college degree had signed
a noncompete agreement (compared with 21.7 percent for those earning
more than $20 per hour and 24.3 percent of college graduates). \5\
---------------------------------------------------------------------------
\3\ Ibid.
\4\ Michael Lipsitz and Evan Starr, ``Low-Wage Workers and the
Enforceability of Noncompete Agreements'', Management Science 68, no.
1, April 2021.
\5\ Donna S. Rothstein and Evan Starr, ``Mobility Restrictions,
Bargaining, and Wages: Evidence From the National Longitudinal Survey
of Youth 1997'', November 2021.
---------------------------------------------------------------------------
As noted by Starr, Prescott, and Bishara (2020)--who found that
13.3 percent of labor force participants who earned less than $40,000
per year in 2017 reported that they were subject to a noncompete
agreement--``the frequency of noncompetes among low-wage employees
without access to trade secrets and the lack of negotiation in the
contracting process hint at more anticompetitive rationales for the use
of noncompetes by employers.'' \6\
---------------------------------------------------------------------------
\6\ Evan P. Starr, J.J. Prescott, and Norman D. Bishara,
``Noncompete Agreements in the U.S. Labor Force'', Journal of Law and
Economics 64, no. 1, October 2020.
---------------------------------------------------------------------------
Noncompetes Lower Wages
To understand the impact of noncompetes on wages, it is useful to
remember that essentially the only source of leverage an individual
nonunionized worker has with respect to their employers is their
ability to quit and take a job somewhere else. That ability means their
employer has to provide a job that is competitive enough in terms of
compensation, working conditions, and opportunities that the worker is
not incentivized to leave to take another job or start their own
business. Noncompetes cut that source of leverage off at the knees.
When workers do not have the freedom to take another job, or start a
business, in their line of work in their community, their employers
simply don't have to pay them as much or treat them as well.
A large and growing body of research bears this out. For example,
using data from the Survey of Income and Program Participation, Evan
Starr (2019) finds that an increase in enforcement of State noncompete
laws (from nonenforcement to an average State's level of
enforceability) is associated with a 4 percent decrease in hourly
wages. \7\ Further, an analysis by Michael Lipsitz and Evan Starr
(2021) of wage trends in Oregon after the State banned noncompete
agreements found that wages for all hourly workers increased by 2-3
percent on average. \8\
---------------------------------------------------------------------------
\7\ Evan Starr, ``Consider This: Training, Wages, and the
Enforceability of Covenants Not To Compete'', ILR Review 72, no. 4,
August 2019.
\8\ Michael Lipsitz and Evan Starr, ``Low-Wage Workers and the
Enforceability of Noncompete Agreements'', Management Science 68, no.
1, April 2021.
---------------------------------------------------------------------------
It is worth noting that these studies show that noncompetes don't
just lower the wages of those subject to noncompetes, they also lower
wages of workers who have not signed such agreements. As described
below, noncompetes decrease entrepreneurship and new firm entry, which
increases local labor market concentration and depresses wages.
Further, noncompetes make labor markets ``thinner,'' reducing the
likelihood of a successful employer-employee match and driving down
equilibrium wages.
An analysis of data of the Noncompete Survey Project by Evan Starr,
Justin Frake, and Rajshree Agarwal (2019) presents evidence that
confirms this logic. Starr, Frake, and Agarwal ``find that in State-
industry combinations with a higher incidence and enforceability of
noncompetes, workers--including those unconstrained by noncompetes--
receive relatively fewer job offers, have reduced mobility, and
experience lower wages'' (emphasis added). \9\
---------------------------------------------------------------------------
\9\ Evan Starr, Justin Frake, and Rajshree Agarwal, ``Mobility
Constraint Externalities'', Organization Science 30, no. 5, July 2019.
---------------------------------------------------------------------------
Noncompetes also appear to exacerbate racial and gender wage gaps
by exerting larger wage effects on women and Black men than on White
men. \10\
---------------------------------------------------------------------------
\10\ Matthew S. Johnson, Kurt Lavetti, and Michael Lipsitz, ``The
Labor Market Effects of Legal Restrictions on Worker Mobility'',
National Bureau of Economic Research Working Paper no. 31929, December
2023.
---------------------------------------------------------------------------
Long-Run Wages and Employee Training
Some have suggested that without noncompetes, firms will abandon
investments in employee training and as a result, workers' wages will
be lower in the long run. While evidence is mixed on whether
noncompetes are associated with more training, it is worth noting that
one reason noncompetes might lead to more training is that they shrink
the pool of available workers with relevant experience, so employers
are forced to hire less experienced workers that require more training.
Evidence also suggests that on net, any gains in long-term wages
workers may receive from additional training in a noncompete regime is
more than offset by the wage suppressing effects of the noncompetes
themselves. Balasubramanian et al. (2020) find that individuals who
start a job in a State that enforces noncompetes see lower earning
lasting over at least 8 years, compared to those who start a job in a
State that doesn't enforce noncompetes. \11\
---------------------------------------------------------------------------
\11\ Balasubramanian, Natarajan, Jin Woo Chang, Mariko Sakakibara,
Jagadeesh Sivadasan, and Evan Starr. ``Locked in? The Enforceability of
Covenants Not To Compete and the Careers of High-Tech Workers'',
Journal of Human Resources, April 2020.
---------------------------------------------------------------------------
It is also worth noting that employers who provide jobs with
competitive wages, working conditions, and opportunities do not have to
worry that their employees will defect to competitors en masse shortly
after they receive valuable training.
Noncompetes Reduce Business Formation, Dynamism, Labor Mobility, Pro-
ductivity, and Innovation
Some claim that though noncompetes reduce wages, they are still
necessary because they boost innovation by incentivizing firms to
invest in developing important advancements by reducing the ability of
their workers to take valuable information about those advancements to
a competitor. However, the best evidence consistently finds that on
net, the effect of noncompetes on innovation is in the opposite
direction.
By preventing workers from leaving their employers to create new
businesses, noncompete agreements reduce business formation, reducing
dynamism in the economy. An analysis based on the findings in Jeffers
(2024) \12\ shows that banning noncompetes will increase the rate of
new business formation by 2.7 percent, which, in the U.S. economy,
would translate into an additional roughly 8,500 new businesses
annually.
---------------------------------------------------------------------------
\12\ Jessica Jeffers. ``The Impact of Restricting Labor Mobility
on Corporate Investment and Entrepreneurship'', The Review of Financial
Studies, July 2024.
---------------------------------------------------------------------------
Noncompete agreements also reduce job mobility--i.e., they keep
workers locked in jobs--and, as a result, they reduce productivity
growth by blocking the efficient reallocation of labor from less
productive to more productive job matches. For example, Johnson et al.
(2023) finds that noncompete agreements cause a significant decrease in
job-to-job mobility. \13\ Eliminating noncompete agreements will allow
workers to find firms, and firms to hire workers, that yield the most
productive matches.
---------------------------------------------------------------------------
\13\ Matthew S. Johnson, Kurt Lavetti, and Michael Lipsitz, ``The
Labor Market Effects of Legal Restrictions on Worker Mobility'',
National Bureau of Economic Research Working Paper no. 31929, December
2023.
---------------------------------------------------------------------------
Declines in business formation and labor mobility as a result of
noncompetes contribute to an overall decline in innovation. A study by
Johnson, Lipsitz, and Pei (2023), finds that an average-sized increase
in the enforceability of noncompetes leads to an 110919 percent
reduction in patenting--including reductions in ``breakthrough''
inventions--over the following 10 years. \14\ Based on this research,
it is estimated that banning noncompetes will lead to more than 17,000
patents each year. Other research, for example Reinmuth and Rockall
(2024), also find that noncompetes have a significant negative impact
on patenting and innovation by ``reducing labor mobility as a channel
of idea diffusion that increases overall innovation.'' \15\
---------------------------------------------------------------------------
\14\ Matthew S. Johnson, Michael Lipsitz, and Alison Pei,
``Innovation and the Enforceability of Noncompete Agreements'',
National Bureau of Economic Research Working Paper no. 31487, July
2023.
\15\ Kate Reinmuth and Emma Rockall, ``Innovation Through Labor
Mobility: Evidence From Noncompete Agreements'', May 2024.
---------------------------------------------------------------------------
Banning Noncompetes Will Reduce Inflation
While eliminating noncompete agreements will raise wages, the net
effect will likely be to reduce prices paid by consumers. Noncompete
agreements increase concentration in the markets for goods and services
by preventing workers from leaving their employers to create new
businesses or join other firms that can increase the market supply and
intensify competition. Banning noncompete agreements will reduce market
concentration, thereby reducing market prices.
Noncompete agreements also reduce productivity growth by blocking
the efficient reallocation of labor from less productive to more
productive job matches. Eliminating noncompete agreements will allow
workers to find firms, and firms to hire workers, that yield the most
productive matches. The increased firm and economywide productivity
will reduce consumer prices.
One area where direct evidence is available on the price effects of
noncompetes is around the effect of noncompetes on prices in health
care. Research shows that noncompetes significantly increase the cost
of physician services (in particular, a 10 percent increase in the
enforceability of noncompetes causes 4.3 percent higher physician
prices). \16\ Based on that research, the FTC estimates that banning
noncompetes will reduce health care costs by at least $74 billion over
the next decade.
---------------------------------------------------------------------------
\16\ Naomi Hausman and Kurt Lavetti, ``Physician Practice
Organization and Negotiated Prices: Evidence From State Law Changes'',
American Economic Journal: Applied Economics, Vol. 13, No. 2, April
2021.
---------------------------------------------------------------------------
Noncompetes Are Often Bundled With Other Restrictive Contracts
Employers who require their workers to sign noncompete agreements
are more likely to require their workers to sign additional restrictive
contract provisions. My research with Alexander Colvin finds that over
half of firms that require noncompetes for at least some of their
employees also require at least some employees to agree to mandatory
arbitration. \17\ Further, Balasubramanian, Starr, and Yamaguchi (2023,
table 2) analyzed data from the 2017 version of Payscale.com's annual
firm-level survey of publicly traded in the United States and found
that almost one in four firms used noncompete agreements together with
nondisclosure agreements, nonsolicitation agreements, and
nonrecruitment agreements for all employees, while more than half used
all four types of agreements for at least some of their employees. \18\
---------------------------------------------------------------------------
\17\ Alexander J.S. Colvin and Heidi Shierholz, ``Noncompete
Agreements: Ubiquitous, Harmful to Wages and to Competition, and Part
of a Growing Trend of Employers Requiring Workers To Sign Away Their
Rights'', Economic Policy Institute, December 2019.
\18\ Natarajan Balasubramanian, Evan Starr, and Shotaro Yamaguchi,
``Employment Restrictions on Resource Transferability and Value
Appropriation From Employees'', January 2023.
---------------------------------------------------------------------------
The reflexive bundling of noncompetes with mandatory arbitration,
nondisclosure, nonsolicitation, and nonpoaching agreements provides
further evidence that the primary purpose of noncompetes is often to
restrict employee options rather than being a tailored strategy for
protecting beneficial investments in and information held by employees.
Relatedly, and as John Lettieri highlighted while employed at the
American Enterprise Institute, workers often enter into noncompete
agreements after little or no bargaining with their employer and
without full information about the rights they are signing away:
The vast majority of noncompete agreements are not subject to
any negotiation between the employer and employee, suggesting
that the employee is unlikely to receive any benefits in return
for their signature. A large share of these agreements are
presented for signature only after the employee has already
accepted the job offer--often on the first day of work.
Employers frequently exploit workers' lack of knowledge and
resources when crafting noncompetes. For example, employers
commonly request that workers sign noncompetes even in States
where they are completely unenforceable--and workers
nevertheless sign the agreements assuming they are valid.
Likewise, employers often craft extremely broad provisions
knowing that employees generally lack both an understanding of
what is enforceable and the wherewithal to challenge the terms
in court. \19\
---------------------------------------------------------------------------
\19\ John W. Lettieri, ``A Better Bargain: How Noncompete Reform
Can Benefit Workers and Boost Economic Dynamism'', American Enterprise
Institute, December 2020.
---------------------------------------------------------------------------
Employers Who Need To Protect Trade Secrets Have Other Options
Employers do not need noncompete agreements in order to protect
trade secrets. California, for example, made noncompete agreements
unenforceable in 1872, but the State has still become a global
technology hub--something that would be difficult to imagine if
businesses in California faced misappropriation of trade secrets and
other confidential information at a meaningfully higher rate than in
other States.
That is because there are intellectual property laws that provide
businesses with significant legal protections for trade secrets.
Further, employers are still able to use tailored nondisclosure and
nonsolicitation agreements. Policies like these, that directly address
what employees may and may not do with company secrets, allow
businesses to protect trade secrets while not harming competition by
taking away workers' freedom to seek other work or to start a business
after they leave their job.
And of course, employers concerned about worker departure and the
associated loss of firm knowhow and knowledge can retain staff by
paying fair wages and salaries and treating them with respect. Many
employers do not use noncompete clauses and have had no difficulty
keeping employees using these salutary methods.
The Broad-Based Nature of the FTC's Rule Is Important
The FTC's rule is a complete ban on new noncompetes for nearly all
workers, including independent contractors and senior executives, while
existing noncompetes for the vast majority of workers will no longer be
enforceable (a key exception is senior executives, for whom already
existing noncompetes will be allowed to remain in force--this group
represents less than 1 percent of all workers).
Some have questioned whether it is reasonable to ban noncompetes
for senior executives or other highly paid workers, who may be
particularly likely to have confidential information. But as mentioned
above, employers do not need noncompete agreements to protect trade
secrets, because they have other options. And while senior executives
or other highly paid workers are likely in a much better position than
other workers to negotiate over their full employment package--
including restrictive agreements like noncompetes--and are therefore
less likely to themselves be made worse off by noncompetes, the broader
economic harms caused by noncompetes mentioned above are still present,
including reduced business formation, economic dynamism, labor
mobility, and productivity, and increased inflation. Many of these
harms may in fact be stronger as a result of noncompetes among this
group than among other workers, as, for example, workers in this group
may be more likely than other workers, in the absence of noncompetes,
to be in the position to start a new firm, and to innovate and grow it.
It is also important that new noncompetes are banned under the
rule, not just made unenforceable. The very existence of a noncompete,
even if it could not ultimately be enforced, can deter workers from
going to work for, or starting, a competing business. The high costs--
financial and otherwise--of noncompete-related litigation means
noncompetes create a chilling effect on new firm formation and worker
mobility that exists whether or not the noncompete would be enforced by
a court. Notably, the chilling effects of unenforceable noncompetes do
not just deter workers from going to work for, or starting, a competing
business, they can also deter other businesses from hiring a worker who
had been working for a competitor and had signed a noncompete, due to
fear of legal complications.
FTC Has the Authority To Ban Noncompetes
Business groups suing to block the FTC's noncompete rule have
claimed that the FTC does not have the authority to ban noncompetes.
But as a Federal judge in Pennsylvania stated last Tuesday in a
decision declining to issue a preliminary injunction against the rule,
``the FTC is empowered to make both procedural and substantive rules as
is necessary to prevent unfair methods of competition.'' \20\
---------------------------------------------------------------------------
\20\ Tomasz Mielniczuk and Craig Minerva, ``FTC's Noncompete Ban
Survives Preliminary Challenge in Pennsylvania Federal Court'', JD
Supra, July 26, 2024.
---------------------------------------------------------------------------
The FTC Act states that unfair methods of competitions are illegal,
and it authorizes the FTC to issue rules and regulations to prevent
their use. Further, the Supreme Court in 1986 confirmed that the FTC
can not only challenge traditional antitrust violations but can also
outlaw practices ``the Commission determines are against public policy
for other reasons.'' \21\ With the noncompete rule, the FTC is doing
exactly what it was empowered (and directed) to do by the FTC Act--take
action, based on the best evidence available, to protect fair
competition.
---------------------------------------------------------------------------
\21\ Federal Trade Commission (FTC), ``Section 5 of the FTC Act as
a Competition Statute'' (web page), October 17, 2008.
---------------------------------------------------------------------------
Noncompetes are not trying to hide that they are contrary to open
and fair competition--it's in their name. They bar workers from leaving
to accept a position in their line of work in their community, stifle
the creation of new businesses, and depress employer competition for
workers' services. There is a large body of evidence, described above,
that noncompetes hinder competition, disadvantaging consumers, workers,
and competing businesses. Banning these coercive and unfair agreements
is fundamental to the FTC's mandate.
Conclusion
In closing, it's worth considering who wins from having
noncompetes. One might believe it is businesses who want to protect
trade secrets--but, as described above, noncompetes are not needed for
that; firms have other options for protecting their intellectual
property.
A core group that does indeed benefit from noncompetes is existing
firms who want to stop new firms from forming and competing with them.
Noncompetes strongly benefit those incumbent firms who want to protect
their advantage, but they make it harder for new firms to start, grow,
and innovate, and, as a result, they are bad for consumers and the
overall economy, both of which benefit from competition and innovation.
Another group that benefits from noncompetes is existing firms who
want to prevent other firms from being able to hire away their workers
by offering them higher wages, better working conditions, and better
opportunities. Noncompetes clearly benefit those incumbent firms, but
are harmful to workers and the overall economy, both of which benefit
from employer competition for workers' services.
Given all this, it is not a surprise that groups representing
existing businesses are fighting tooth-and-nail to keep their ability
to require workers to sign noncompetes. That, however, does not mean
noncompetes are good for the Nation. In fact, noncompetes are bad for
economic dynamism and innovation, they depress business formation and
labor mobility, they hurt productivity and growth, they raise prices,
they shrink for workers' wages, and they restrict workers' freedom.
Banning these coercive and unfair agreements is fundamental to the
FTC's mandate, and the workforce, consumers, and the broader economy
will be better off for it.
Thank you for holding this important hearing and I look forward to
your questions.
______
PREPARED STATEMENT OF R. JAMES TOUSSAINT
MD FAAOS, Orthopedic Surgeon
July 30, 2024
Good afternoon Chair Warren, Ranking Member Kennedy, and Members of
the Subcommittee. Thank you for inviting me. I am here to discuss my
experience with noncompete agreements from a physician's perspective.
It is an honor to share my story with you today.
My name is Rull James Toussaint. I have spent 2 years at the
University of Florida where I am an orthopaedic surgeon. I would like
to state for the record that the opinions expressed herein are my own
and do not reflect the views or positions of the University of Florida
or University of Florida Health.
I was born in Haiti, and emigrated to Florida where I learned to
speak English while excelling in academics. I achieved the American
dream when I was the first in my family to be accepted to college at
the University of Chicago. Thereafter, I went to work on Wall Street in
an effort to pay off my student loans. After an additional 4 years of
hard work, I was blessed to be accepted to medical school at NYU where
I was among the top of my class. As a result, I matched at Harvard
University's prestigious orthopaedic surgery residency program and
subsequently completed an orthopaedic foot and ankle fellowship at
Ortho Carolina in Charlotte, North Carolina. At this point, my life
goal was simple: to return to Florida as a well-trained orthopaedic
surgeon who would treat his community, including the underserved.
In 2014, I returned to Florida and joined a private practice
multispecialty musculoskeletal group as their only foot/ankle-trained
orthopaedic surgeon. In fact, at the time, I was only one of two
orthopaedic surgeons with this expertise across a dozen mostly rural
counties in Florida, serving over 850,000 people.
Over the next few years, the partners of my practice and I felt the
pressures of decreasing reimbursements from insurance companies coupled
with the increased burden of pre-approval requirements from insurers,
as well as intense competition from other practices. We felt that an
infusion of capital was necessary to remain competitive. As a result,
the partners entered into a purchase agreement with a private equity
firm headquartered in California. The deal closed in 2017.
Although I am legally bound from disclosing the terms of the
transaction, I can say that it included a restrictive covenant (i.e., a
noncompete clause). Per the noncompete, I would be restricted from
practicing orthopaedic surgery within 25 miles of:
1. Any facility in which the group is currently providing medical
services;
2. Any facility in which the group has previously provided medical
services;
3. Any facility in which the group has targeted for expansion within
the entire State of Florida, or;
4. Any facility the group was in discussions with related to a
potential acquisition.
This noncompete clause was valid for 2 years from the date of
termination of employment for any cause.
At this point, one might wonder why we would sign such a deal. The
reality is that the nuances of the noncompete were not known until we,
the doctors, had spent hundreds of thousands of dollars in transaction
expenses related to the acquisition. As a group, we felt backed into a
corner and believed our only choice was to proceed with the transaction
in good faith.
Unfortunately, one of the private equity group's first actions
after the deal was set was to install its own board and management
team. The private equity group promised us that the new management team
would have years of orthopaedic expertise. Unfortunately, none of the
new leadership had any notable experience with running an orthopaedic
practice.
Within months after the deal's closing date, the morale of the
physicians and their staff changed for the worse. Many of the long-time
employees were laid off or fired to make room for new hires by the
private equity group. This led to patient dissatisfaction and
significant disruptions in the physicians' day-to-day clinical
practice.
Next, instead of cost savings, the practice's overhead expenses
increased significantly. The increase was due to more layers of
administrators, management fees, and millions of dollars of debt. The
overhead increased so substantially that some physicians not only did
not receive a paycheck, but instead actually paid the group to work,
despite the physician taking on all the risks and responsibilities of
patient care. After endless complaints from the physicians about the
insurmountable overhead expenses, the private equity group finally
responded. To the physicians' dismay, one of the methods of cost
savings was to change malpractice coverage to a lower-tier, less-
expensive insurance carrier.
Furthermore, the physician take-home pay decreased dramatically. As
previously mentioned, some doctors indeed had to pay for the privilege
to work. Unfortunately, some doctors were tempted to find other ways to
pay their overhead. All the while, the cost to the patients continued
to rise while they noticed their quality of care decreased. I had many
patients complain to me about surprise billing and unexpected increases
in their medical bills, as well as how they were unhappy with their
treatment outcomes from overworked surgeons.
Since the private equity deal closed, nearly half of the group's
original partners left the group. To save face, the private equity
group's management team would lie to patients and say that the doctor
retired, even though the doctor had not actually stopped practicing
medicine. In my case, I was disillusioned by private equity's
mismanagement of the practice and the group's focus on dollars instead
of the quality of health care. I eventually put in my resignation
letter highlighting my intention to leave private practice and enter
academic medicine at the nearby nonprofit State-run institution. This
decision made sense given that the only other orthopaedic foot and
ankle subspecialist in the entire region was retiring, and I would be
able to help educate the next generation of surgeons in my specialty.
Despite this, the private equity group quickly sued to enforce the
noncompete agreement to prevent me from practicing medicine at another
facility. It did not matter to the private equity group that the local
community and entire region--an already underserved community--would
not have a specialist surgeon to care for their injured patients.
It did not matter to the private equity group that the academic
medical center was the only provider of orthopaedic care for the
Medicaid patients in the region and without me, the Medicaid patients
would have to travel hours away for treatment.
And finally, it didn't matter to the private equity group that the
State of Florida had enacted a statute (Chapter 542 Section 336)
stating that if one entity employs all physicians who practice a
particular medical specialty in a county, then restrictive covenants
the entity enters into with those physicians are void and
unenforceable.
Despite all of what I stated, within days of my leaving the
practice, the private equity group threatened legal action to prevent
me from entering academic practice. Despite the existing State of
Florida statute negating the enforceability of the noncompete, the
private equity firm's goal was clear. Their goal was to wage an
expensive and prolonged legal battle in the hopes that I would
capitulate and leave my community even before a final judgment was
rendered.
After a 4-month dispute, a legal settlement was achieved, and I was
able to join the faculty at the university. Not surprisingly, many
patients from the private practice who seek my care at the university
tell me of the frustrations they encountered when they called the old
practice trying to find me. They said that the private equity group
lied to them and stated I retired from medicine or left the State.
Because of my concerns with PE and health care, including their use
of noncompete agreements, I'm a member of the Coalition for Patient-
Centered Care (CPCC). CPCC represents a diverse group of health care
industry stakeholders who stand together in opposition to private
equity's acquisition and influence over independent physicians that can
result in an emphasis on profits and revenue growth over patient
interests. We call on other stakeholders who share our concerns about
PE to visit our website at www.patientcenteredcare.com, follow us on
Twitter/X@CPCC--America and our LinkedIn page to join our cause.
Unfortunately, I have experienced the negative consequences that
noncompete agreements have on patients, physicians and communities. My
noncompete agreement restricted my ability to care for patients, and
restricted patients' ability to seek medical care. I have concluded
that these restrictive covenants negatively impact patient access to
physicians, limit the quality of care, and increase costs to all
parties. I look forward to the FTC's Noncompete Rule going into effect,
because I know firsthand that banning noncompete agreements will
benefit both physicians and their patients.
______
PREPARED STATEMENT OF HAYLEY PAIGE
Small Business Founder and Wedding Dress Designer
July 30, 2024
Introduction
I am Hayley Paige, a wedding dress designer and the cofounder of
SHE IS CHEVAL. From a young age, I was destined to design wedding
dresses. My journey through childhood, education, and industry
experience was dedicated to perfecting my craft and bringing joy to
women through my designs. Wedding dress design is my identity, passion,
and contribution to society.
The bridal fashion industry and brides embraced me. My designs
graced the racks of over 250 stores, including Nordstrom and
Anthropologie, and gained international acclaim. I was featured on
``Say Yes to the Dress'' and named one of Vogue's Top Ten bridal
designers. The success and recognition I achieved were a testament to
my dedication, hard work ethic, and the American Dream.
However, my journey took a harrowing turn when I faced a
restrictive noncompete clause. This clause not only stifled my ability
to work but also shook my faith in the justice system, left me
financially devastated, and prevented me from designing and sharing my
creativity with brides across the country. My experience underscores
the critical need to ban noncompete agreements, which hinder
creativity, suppress innovation, and restrict the potential of
individuals and the economy.
This testimony reflects my personal battle and magnifies why
banning noncompete agreements is essential for fostering a vibrant,
competitive, and innovative economy.
Background and Personal Experience
In 2011, at the age of 25, I signed an employment contract that
included a noncompete clause. At the time, I believed this noncompete
was reasonably restricted to the duration of my employment. The
contract seemed like the opportunity of a lifetime, and I felt
compelled to accept its terms or I would lose the opportunity entirely.
The imbalance of negotiation power and my intimidation by the prospect
of hiring an expensive lawyer left me vulnerable. I could not foresee
how this contract--including a separate intellectual property clause--
would later be interpreted to strip me of my ability to use my own
birth name, threaten my connection to women worldwide, stifle my skill
set, and rob me of my livelihood.
My contract did not just impose a restriction during my employment
but, as I later discovered, was interpreted in a way that limited my
ability to practice my chosen trade in the future. In essence, to
secure my dream job, I forfeited my dream once that job ended--or in my
case, once my former employer sued me in Federal court.
In 2020, I faced a lawsuit and subsequent injunction that
prohibited me from using my own birth name in commerce and required me
to relinquish control of my personal social media accounts, including
my Instagram account which had grown to over 1 million followers. I was
also barred from working in my chosen field for 5 years because of a
noncompete provision. Without question, the noncompete provision was
the most devastating of the three. I could start over with a new name,
I could open new social media accounts and rebuild, but I could not
work in my chosen craft.
While this was shocking and devastating, I refused to succumb to
victimhood. I publicly changed my name to Cheval and started a new
Instagram account. However, the notion of having to learn an entirely
new trade after dedicating my life to this industry was unconscionable
and unjust.
This lawsuit, coupled with the broad interpretation of my contract,
led to a three-and-a-half year long legal battle that led me to incur
millions of dollars in legal fees--an amount far beyond what many
individuals (myself included) could afford. I spent every dollar I ever
earned designing wedding dresses to fight for my right to do so once
again.
Being stripped of the talent I had worked so hard to cultivate and
encourage has shown me how devastating noncompetes are to personal
development and the economy.
Impact of the Noncompete
Where I once found creative freedom and incentive to advance, I
soon encountered unreasonable confines that limited my freedom of
speech and my ability to publicly practice a trade I had passionately
cultivated since childhood. More dramatically, I was limited in my
creative expression on social media due to the broad interpretation of
my contract. At one point during my litigation, I was even held in
contempt of court for sketching dresswear on social media. This harmful
restriction on my personal expression was a stark threat to my First
Amendment rights.
The residual stress my situation caused brides was devastating to
witness. Many women who had followed my personal social media account,
@misshayleypaige, from its inception and watched me interact with all
types of brides on ``Say Yes to the Dress'' had their own diverse
dreams of one day choosing a Hayley Paige gown for their most special
day. The harsh reality was that they were no longer getting a dress
from me, the designer they personally connected with and inspired, and
there would be no new dresses to choose from. This tarnished what
should have been an emotional and genuine purchase.
Moreover, the noncompete adversely affected bridal retailers who
had financially invested in my collections on the premise that I would
be the designer providing the work. Many refused to support new Hayley
Paige collections that were not designed by me. The market, which
demands the freshest and most dazzling designs twice a year during
bridal fashion week, was deprived of healthy competition. The industry
lost the benefit of my creative contributions and a unique design
aesthetic not practiced by other designers in the industry.
Broader Implications and Unfairness
My case exemplifies how noncompetes can be weaponized to the
detriment of individuals and industries. The broad interpretation of
these agreements leads to outcomes that stifle creativity and
innovation. While I had the rare resources to fight for my rights and a
legal team that was willing to keep fighting when my financial
resources ran dry, many others do not share that privilege. Individuals
like myself are often at a stark financial disadvantage to those
seeking to enforce noncompetes. The financial and emotional toll of the
legal battle alone is a burden that most people cannot bear, making
this issue all the more pressing.
Noncompetes are detrimental not only to high-profile professionals
but to workers across all sectors. They hinder economic growth by
preventing talented and hardworking individuals from contributing to
the marketplace, which stifles competition. If we want to encourage
innovation and ensure that the American Dream remains accessible, we
must eliminate these restrictive practices.
Living in a country where freedom and fairness should ring true, I
want to demonstrate how noncompetes operate shamelessly on a one-way
highway: if we are not limiting competition among corporations, why are
we limiting it among individuals? As I sought a way forward in my
lawsuit, I started a small business and, as a founder, I depend on
competition to inspire and elevate my performance.
Another example of this one-way highway is the unilateral benefit
for corporations to continue hiring and profiting, while the employee
is restricted from working and earning a living. In my situation, I was
replaced by a new designer who took over my brand and collections in a
matter of months, but I was restricted from making a living doing what
I had dedicated my life to for years.
Due to the broad interpretation of my employment contract, my
life's work and passion were halted. All my hard work seemed to amass
an unreasonable debt, requiring me to sit on the sidelines and cease my
progress. The idea that my contribution to society was no longer my
choice or in my hands was unfathomable.
Alternative Protections and Innovation
The last area I wish to focus on with respect to the threat
noncompetes pose to our economy is the plethora of thoughtful ways to
protect intellectual property without stifling innovation and personal
growth. Nondisclosures and privacy policies allow corporations to
safeguard valuable trade secrets effectively. These measures can be
implemented without resorting to harmful noncompetes or preventing
people from working, earning a living, and pursuing their passions.
As a small business founder and capitalist, I fully recognize the
importance of protecting sensitive information. But I firmly believe in
our ability to achieve this while also allowing individuals to continue
working and contributing to their fields. We can preserve corporate
interests without constraining the creative and entrepreneurial spirit
that drives our economy.
States like California have already banned noncompete agreements,
serving as proof that innovation and economic growth can thrive without
these restrictive clauses. Silicon Valley, an area I grew up in, is a
testament to the power of human intelligence and greatness. Imagine the
stagnation that would ensue if we were to stifle that innovation with
noncompetes. Healthy competition is not only beneficial but essential
for a robust and dynamic economy.
In my previous employment role, I signed a nondisclosure agreement
to protect the company's financial and other sensitive information.
This demonstrates that there are already effective tools in place to
safeguard corporate interests without hindering individuals' careers.
Noncompetes are an unnecessary and harmful redundancy.
Conclusion
My experience of being constrained by a noncompete clause has
profoundly reinforced my belief in the necessity of banning these
provisions. Often disguised as genuine agreements, they are harmful
tools that undermine fair competition and threaten the American Dream.
These provisions silence voices, stifle creativity, and suffocate the
entrepreneurial spirit that has always driven our Nation forward.
Imagine a world where the next great innovation is left unrealized,
where the brightest minds are left idle, and where the American Dream
is nothing more than a distant memory. This is the world noncompetes
create--a world where potential is capped and progress is halted. We
owe it to ourselves and to future generations to dismantle these
barriers and build a marketplace that thrives on the free exchange of
ideas and the relentless pursuit of excellence. If the next great
American inventor, creator, or entrepreneur is constrained by a
noncompete, it is likely that innovation will happen elsewhere and
America will fall behind.
I urge the Committee to consider the broader implications of
noncompete clauses. These agreements do more than restrict individual
careers; they erode the very foundation of a free and dynamic economy.
They are antithetical to the spirit of competition and innovation that
defines us as a Nation.
Let us champion measures that promote a more equitable and vibrant
marketplace, one where every individual has the chance to pursue their
passions, contribute to their industries, and drive economic growth.
Let us create an environment where talent and hard work are rewarded,
where dreams are not deferred but achieved, and where the American
Dream is not just a promise but a reality for all.
In the words of the great Robert F. Kennedy, ``Each time a man
stands up for an ideal, or acts to improve the lot of others, or
strikes out against injustice, he sends forth a tiny ripple of hope.''
Let us be those ripples. Let us stand up for what is right. And for
sparkle sakes, let the girl design a dress.
Thank you.
Additional Material Supplied for the Record
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