Washington Takes Aim At Those Hated Non-Compete Agreements

company from taking that valuable knowledge to arrival. The number of people who fit that description is fairly small, but over the years, more and more companies started requiring new hires to sign on compete agreements for jobs of all kinds. Hairdressers, security guards, doctors, even fast food workers are often owned by these agreements, which effectively freeze people in place, making it difficult or impossible for them to leave their job

for a better offer in the same field. Some states have already taken steps to declare many of these agreements unenforceable, and now the Federal Trade Commission is also looking to restrict their use nationwide. Bloomberg reporter Leah and Nylon covers the Federal Trade Commission, and she joins me now to explain what's happening, Leah, Can you start by telling us why the Federal Trade Commission decided to go after these

non compete agreements? Yeah, Actually, it's pretty interesting. The FTC has been looking at non competes for a while now. It wasn't just under the Biden administration. During the Trump administration, they sort of started this initiative because there were a lot of state attorneys general who were bringing cases challenging some of these noncompetes. One of the most famous ones

involves Jimmy john Sandwiches. Jimmy John's actually had this clause in all of its employment contracts with sandwich makers that they could not go to another sandwich maker, and Illinois and a couple other states thought this was pretty ridiculous. So like, if you work for Jimmy Johns, you're working a minimum wage or near minimum wage job, you couldn't

go to Subway. Yes, it specifically said that you couldn't go to other places that make sandwiches, pedas it had all of these different things, like a restaurant that does the majority of its business making sandwiches, and so a bunch of state attorneys general sued over this. They got a settlement with Jimmy Jones Jimmy Johns agreed to stop putting these in their contracts, but then a couple of other state attorneys general like really took off with this.

Washington State Attorney General brought dozens of cases against these, mostly involving things like baristas or cashiers at various different

types of retail stores. So it quickly became apparent that these clauses are in a lot of contracts, and like the sort of contracts that you wouldn't think that they would be in because the original idea, of course, was to protect intellectual property or if a company trained you in something highly specific, you wouldn't want to then just turn around and give that same knowledge to another company. And so what was the basis of these suits that

attorneys general we're bringing in? The FTC was looking what were they saying was wrong with him? Yeah, So a lot of states have laws on consumer protection that are actually very similar to the law that the FTC enforces. They're called mini ftccs, and they prohibit companies from engaging in unfair or deceptive business practices. And so a lot of these state ages were arguing that these clauses are

clearly unfair. Often they're hidden in sort of like straight up contract language that a lot of people don't read and aren't even aware that these are in there until they try and take another job, and then whatever company says, actually, you can't leave because you sign this non compete. And so it's just a way of keeping employee is in a workplace where they otherwise might want to leave, and

you make more money or get a better opportunity. Yes, And so the FTC started investigating or looking into non competes during the Trump administration. There was this big workshop that they held in the very beginning of twenty twenty, right before the pandemic, in which a lot of the state ages and sort of various academics who've studied noncompetes

came and testified before the FTC about this practice. Since then, you know, they've been slowly building their research on this, and then they announced this non compete rule in January

of this year. It was very interesting because, as I said, they've been telegraphing that they might be doing this for quite a while, but it still took a lot of businesses and groups by surprise that the FTC proposed such a broad rule because what they have proposed would outlaw non competes in almost all circumstances, with the exception of if you sell a business, they said it would be okay for the acquiring business to put a noncompete, because

nobody really wants to buy a business and then have the found go out and start, you know, arrival the next day. Leah, can you tell us just a bit about the FTC itself? How does it work, who runs it, how do they do what they do? Sure? So, the FTC is a agency founded in nineteen fourteen, specifically because Congress was a little bit unhappy with how the Justice Department was enforcing the antitrust laws. So Congress had passed some antitrust laws in the late eighteen hundreds eighteen nineties

focused on corporate power. Some of the really big companies at the time were like Standard Oil and the railroads, and Congress was really concerned about how much power those companies had over trade in the US. You know, the railroads obviously controlled a lot of agriculture and things that could go across the United States since that was the

primary mode of transportation at the time. So they passed laws allowing the Department of Justice to bring cases against these companies, particularly what they felt were sort of unfair business practices. But they felt that the Justice Department wasn't moving fast enough, so in nineteen fourteen, they passed a new law, the FTC Act, creating the Federal Trade Commission,

which is a five member agency. No more than three members can be of the same party, so it is supposed to be a bipartisan and it has authority to challenge a lot of business practices. They made the law creating the FTC specifically broader than the other antitrust laws that they had already passed. So the FTC has two main powers. The first one is to challenge unfair or deceptive business practices, and the second one is to challenge

unfair methods of competition. So this non compete rule that they propose is one of the first times they have created a rule under this power to regulate unfair methods of competition. So who appoints these members of the FTC? So they have to be some Republicans, some Democrats. Yeah, the President selects the members of the FTC. They serve for seven year terms. By tradition, whenever there's a new president,

they designate a chair. If the current chair is of the other party, that person steps down so that the president can name a new person to be the chair. So when President Biden was elected, the chair under Trump stepped down so that there was a vacancy, and then President Biden appointed Lena Khan. And she's been fairly activist in pursuing the kinds of things we're talking about here today. Yes, it was very surprising to people that he picked Lena

Khan because she's very progressive. She's also very young. She's the youngest ever Federal Trade Commission chair. She had written as an academic about how the FTC has a lot of powers that it hasn't really utilized, and one of them that she was proposing is this ability to make

rules designating what is unfair methods of competition. So do you see this thing where when a democratic president is in office, the FTC becomes more activist I'm looking at corporate when Republicans are in it becomes less so or do they generally always kind of pursue this mission. I would say they always sort of pursue this mission. It's a little bit more of like degrees of how serious

they are because it is a five member commission. So one of the ideas is that the commission is supposed to work a little bit on a bipartisan basis, taking input from all five of the commissioners to sort of pick the direction. One thing that Lena Khan has done that's been a little bit different than previous Federal Trade Commission chairs is her FTC has been a little bit more partisan. So there have been a lot of three

to two votes in the past. The FTC definitely tried to act on a more bipartisan basis and there were more five O votes than anything else. We're talking about this non compete action that they're taking. Where does it go from here? How long till we find out whether this rule banning these non competes actually it takes place. Yeah, So they are right now taking public comments on the proposal. It was going to be through the end of March.

They just announced that they're extending in an additional thirty days so that people have more time to offer their comments because they have gotten a significant amount of pushback

from a lot of business groups. The Chamber of Commerce is the primary one, but all sorts of other types of groups spoke at a public hearing that the FTC held about a month ago, and one of the main concerns that a lot of the companies have is, from their point of view, non competes are very useful, particularly for executives who have a lot of insight into business planning and corporate direction, and they're a little bit concerned that this rule would outlaw that kind of a noncompete.

And as they were saying, you know, you really don't want the CEO of a company to quit and the next day go to its biggest rival, because then they're going to have a lot of trade secrets or corporate information that another individual might not have. So a lot of these companies and trade groups were really pressing the FTC to narrow the rule a little bit to make

sure that that kind of a situation couldn't happen. But none of them are arguing that if you work at a fast food place that you shouldn't be allowed to take a job at another fast food place. Yeah, that was what was so interesting was everyone was like, yes, we agree that these non compete agreements have been abused and the FTC should absolutely go after these cases where there are abusive nine competes. But there are some situations

where they're okay. The day before the FTC announced the noncompete rule, they announced three enforcement actions against various companies, one of which the sort of most egregious one was a company that required all of their security guards to sign a two year non compete that they could not work as a security guard for any other company within like one hundred and fifty miles. And that's sort of like what the FTCCS is like an abusive none compete.

Do you think ultimately this is going to pass and these petza are going to go by the way, It's a little hard to say. I mean, they definitely have a lot of support from the administration. President Biden has said that one of the things that first made him interested in competition was learning about the ubiquity of these types of noncompetes. They are very common in particular industries like healthcare, like tech. Also hairdressers. There are a lot

of hairdressers who are subject to noncompetes. And in fact, we're gonna hear from a hair stylist in just a couple of minutes, and that's sort of in the administration's view, those aren't really the situations where noncompetes are called for. So there's a lot of support within the administration for this rule, but there are a lot of legal questions about whether the FTC actually has the authority to propose a rule as broad, and whether under the law and

it's existing authority, it can move forward with this. Yeah. I think here in Washington, a lot of people understand that this so called alphabet agencies, you know, the SEC and the FAA and here the FTC have a lot of power. But I think a lot of people would be surprised how much authority these agencies really have. Yeah.

I think that was one of the things that Lena Khan has been very good at doing, is finding a lot of the powers that are actually within the FTCs statute and making the agency flex its muscles in ways that it really hasn't in the past. Leah and Ailand, thanks so much for talking with me. Thanks for having me. When we come back, we'll hear from someone who's run up against one of these non compete agreements. We've heard how people in all kinds of jobs are sometimes subject

to these noncompete agreements. Producer Catherine Fink spoke to one of them, Jennifer Alvarez worked as a hair style list in Illinois and signed a noncompete with one employer. I worked at a salon, and I worked for the company for eleven years, and I did sign a noncompete when you are going to be departing from that employment. It was a non compete of four point one miles. Four miles in my particular area definitely was pushing me out of the territory where the majority of my customers were.

There was a lot of salons as well, so I felt restricted as far as going to a different salon. I felt restricted in the sense that there was several times throughout my employment that I wanted to leave, and I wasn't certain financially what that would mean for me, giving that I was a commission employee too. I solely relied my customers to make money to be able to pay all my bills. So it's not like it was an hourly job where I just needed to show up

and do the bare minimum. I had customers I had to take care of, and I took great pride in that. You know, I was pretty young when I started, and so most of us just didn't ask questions. We just all signed it. Because we felt like we had to. I wish that there would have been somebody to educate me at the time of like, you don't have to sign this, or I don't know if I didn't sign that, would they have said, oh, well, you can't work here.

When I left, I didn't have an exit strategy and I basically just quit and I didn't have a plan of where to go. So I did reach out to two different lawyers and they both said, yes, this is going to be enforceable, don't even try to push it. So I ended up finding it salon suite that was probably about fifteen minutes away from the place that I worked at, and I basically had to rebuild my business

all over again. Jennifer now owns her own hair salon, and she says because of her experience, she doesn't require her employees to sign noncompetes. You have to do things to protect your investment and to protect your business. And at the same time, I know how I felt with the non compete as if I was handcuffed to the business.

And my thought process is, if you don't want to work here anymore, then leave the doors open for you, because I really want my team to love where they're working and enjoy coming to work every day, so I don't believe that we should have that inner business. At the same time, it would really suck if my team, you know, like if walkouts had happen to a lot of salon owners, and that it would be really unfortunate if they went right across the street. My entire team,

with everything that I've trained and invested in them. But my motto is, I'm going to make this a no brainer. It would be absolutely ridiculous of you to leave because of what I offer. They're wanting flexible schedules, they want healthcare, they want education, they want support and coaching. So I offer those things to them and empower them to take ownership of their business because it is their business too.

Let's hear a little more about how common experiences like these are and how Joe Biden has made workers rights in general a theme of his administration. Joe Constance on Bloomberg's Workshift team, Senior labor reporter Josh Idelson and Mario Parker, who leads Bloomberg White House and Politics coverage, are reporting on this question, and they're here with me now. Joe, I can see how a relatively small percentage of employees would be privy to trade secrets or receive expensive training

at the workplace. That would be detrimental the company if they turned around and took it someplace else. But these agreements cover a lot of employees who don't have any of that exactly. So I think one of the interesting things here is that it applies to executives. It's pretty common for executives to sign these, about sixty to eighty percent. Typically we'll have one of these agreements in their contract.

But it also applies to hourly workers in many cases. Josh, why have these agreements spread so far and wide so millions of workers are covered? According to studies by non competes, agreements from sandwich workers to warehouse workers have been covered by non competes, and advocates would argue this is not just about secrecy or confidentiality, it's about power because one of the ways that workers have leverage against their boss is to organize and take collective action that's often difficult

to do at scale in the United States. Another form of leverage some workers have is the ability to quit and go work somewhere else, and especially go work somewhere else using the skills that you have, and so if a company can block the exits, then they have more power over those workers, whether it's about their pay or about issues with the workplace culture, harassment, discrimination, safety, workers who feel trapped, as a number of workers I've talked

to said, they do have less leverage to take on issues in their workplace, and non competes are one of several facets of this effort by employers to restrict employee's ability to go elsewhere. Mario, these nine competes have been around for a long time. They've gone through many different presidential administrations. Joe Biden's Federal Trade Commission is now taking aim at them and a lot of other sorts of things that hinder worker ability to change jobs and seek

new opportunities. Why is Biden going after this? Why is he making this a focus? The Biden administration is saying it, Look, the pendulum has swung way too far and these laws are now a hostile toward workers. There's a case where the FTC took action against the company that was imposing a non compete on security guards. Right to Josh's point, how that already hinders that certain workers mobility and ability

to leverage their skills and get a higher pay. I think that's a classic case of what you see Biden siding those type of things where the pendulum swung way too far. I was asking some of the folks I was talking to some of these law professors and other experts, how did it get quite so common for these agreements

to be so widespread? And I think one of the answers is just that it's really easy for companies to just put this clause in their employment contract, and you know, we have photocopiers, so it's really easy to kind of just duplicate over and over, and you know, there's no

reason to really take it out. I think it benefits the employers as well, because it's a lot easier to enforce than other mechanisms, especially for those employees that they're actually worried will take you some sort of valuable information or perhaps client relationships over to a competitor. It's easier to stop them from leaving than it is to prove that they passed along this confidential information. There are a few downsides, so I think that's another reason why we've

seen this proliferate quite so much. And as you said, Joe. It may not matter for the company if the agreement is not legally enforceable, because unless the company gets in trouble with an enforcer or with a judge, the worker may not want to test their luck in court. As one law professor said to me, generally workers are not lawyers, and so in the state of California, for example, non

competes are often not legally enforceable. But that does not mean that companies don't impose them on workers, and it doesn't mean that workers don't choose to stay put because of the fear of testing that agreement. Our conversation continues

after the break, Mario. The Biden administration and Democrats in Congress aren't just going after these noncompete agreements, but whole package of other workplace reforms, like nondisclosure agreements that say you can't talk about what happens to a work or agreements where you're forcing into arbitray with your company. If you have a disagreement, you can't sue. Both of those things have been outlawed in some circumstances by new laws. So there seems to be this pretty big push in

Washington to tip some power back toward workers. Yeah, No, absolutely. I mean you're saying some of that particularly bubble up from the progressive wing of the Democratic Party, but also the centrist wing as well. I think that you have to take this in some of the contexts that we're

in right now. Tight labor market. Biden a popular refrain of his presidency stump speeches that under him, workers have more power than they've had in years, and you're kind of seeing that in some ways to be fair play out both in Congress in terms of some of the actions that he's taking as will I would just note on nondisclosures and forced arbitration agreements, it's still only particular situations like sexual harassment where those practices have now been

restricted by Congress and more unearly, companies do still have wide discretion to force workers into arbitration or to restrict them from talking about things that happened at work, and the boundaries of where exactly they can and can't do that, especially under federal labor law, are likely to be tested

more over the next several years. Joe, do you see that these laws that outlaw nondisclosure agreements and force arbitration in the cases of sexual harassment are kind of like the narrow end of the wedge, and soon we're going to see that expanded to other forms of workplace mistreatment

that is not going to stop just with sexual harassment. Yeah, I mean, I think with a lot of these issues, you kind of start with where you can get everyone on board and kind of where you can shore up the most support, and then I think you can work from there, and that might be kind of the mindset that they're working with. So yeah, it's quite possible that

we might see more movement on that front. It will be interesting to see what Biden does and doesn't do now that there's a divided Congress with a Republican House already. Many of the moves that have drawn the most praise and attention from labor advocates under the Biden administration have

not been legislative. They have been things like recording a video supporting workers right to organize as Amazon workers were about to vote on unionization, or on his very first day in office during his inauguration, firing the top prosecutor appointed by Donald Trump at the US Labor Board and

later replacing him with Jennifer Abruzzo. Arguably the most aggressive progressive General Council, the National Labor Relations Board has had who has taken on a wide range of company practices and done more than most people expected to test the boundaries of what under ex sting law that agency can do.

I do want to add that you have seen again with this divided Congress that we have now and Josh raised a point as to what Biden has left in the toolbox, and you're seeing him really use some of the tools that he has in his executive office the bullypool pit of the White House, with the nomination of Julie Sue recently to take over as Department of Labor Secretary for Marty Walsh, who has just recently left the administration.

You're also saying some of the appointments on the National Labor Relations Board as well, Jennifer Bruzzo, as Josh mentioned, Gwen Wilcox and others who have these union pro union backgrounds as well. So that also sends a signal where he's kind of tilting at least the weight toward workers. Joe, people who argue for getting rid of these non competes say that if people are able to switch jobs, it'll also help them make more money. Is that actually borne

out with data. Yeah, So there have been a few studies that have been done in situations where, you know, some states have passed laws that restrict these agreements. So there was one in Oregon where there were some restrictions, especially for lower wage workers, and the researchers found that right away there was more mobility for those workers when those agreements were banned, and those workers got about a two to three percent wage bump initially and then over

time that grew to about five percent. And then in Hawaii they banned these agreements specifically for tech workers and they found that those workers got about a four percent wage bump. So you know, they're not getting twenty percent raises, but it's small, but it's substantial and significant, and especially across the economy, it could really make a huge impact.

One management professor I talked to said, there are really two schools of thought about how to retain your employees, and one is to be nice to them and the other is to trap them in their jobs. And companies have a lot more power over workers if those workers don't see a realistic way to hop to another job doing the thing that they know how to do. And particularly in the US system where so many basic protections like health insurance are intimately tied to your job. It's

a scary thing. And I think the other thing here is if the employer knows that you know, you don't really have any other options, you're kind of there for the foreseeable future. You know, they don't have that incentive to give you those nice things, to give you that pay bump to make sure that you stick around. And also, there has been plenty of research that shows that one of the most effective ways to get a raise is to jump jobs or at least have another offer to

leverage with your current employers. So if you're not allowed to go anywhere else, you're not allowed to have a job offer in hand. It's really tough to see those games. Joe Constance, Josh Idolsen, Mario Parker, thanks for talking with me, Thanks so much for having us. Thank you, Thanks Wis, Thanks for listening to us here at the Big Take.

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