Jan 12, 2023
On January 11, The Capitol Forum hosted a conference call with Elizabeth Wilkins, the FTC’s director of the Office of Policy Planning and lead staff on the proposed rule to ban non-competes. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Good afternoon. And thanks everyone for joining today’s conference call with Elizabeth Wilkins, the FTC’s Director of the Office of Policy Planning and the lead staffer on the proposed rule to ban non-compete agreements. As always, if you have questions for us, please email them to email@example.com and we’ll try to get to them before the end of the call. And thank you so much for doing this today, Elizabeth.
ELIZABETH WILKINS: Oh, it’s my pleasure, Teddy. It’s a pleasure to be here.
TEDDY DOWNEY: And these interviews are really about we’re exploring solutions to monopoly problems. And I’d like to start off the conversation by asking what’s the monopoly or the economic problem that this new proposed rule to ban non-competes is trying to address?
ELIZABETH WILKINS: Sure. Let me go back to a really great Treasury report that we put out a couple of months ago about the state of labor markets in the economy today. There is an enormous amount of monopsony power. That sounds like monopoly, but it’s a little bit different. It’s basically monopoly power on the part of a buyer. So in this case, the buyer of labor employees have an enormous amount of monopsony power over employees from all sorts of sources. And we estimated in that paper that the various sources of monopsony power might be depressing wages in the American workforce by as much as 20 percent.
Non-competes are one of those sources of power on the part of employers with respect to workers. These are exactly what they sound like. They are terms in your employment contract that say you can’t go work for a competitor or you can’t go and start a competitive business. They lock workers into a relationship with their employer, reducing the worker’s power to go get a job with better wages, with better benefits, the health care they need, the flexibility they need for their family. And we think that removing those non-compete contracts both reduces the monopsony power on the part of employers and also creates a healthier labor market. And as we can talk about more, a healthier product and service market as well.
TEDDY DOWNEY: And just so I’m clear, this applies to all workers, not just low wage workers?
ELIZABETH WILKINS: That’s right. Workers across the income scale. One of the things that we see is that – well, I have to say people sort of think of non-compete as something that only applies to the boardroom, only high wage workers. But what we find is 18 percent, almost 20 percent of the workforce, 30 million Americans, are covered by this. And we’re not just talking in the boardroom. We’re also not just talking security guards and sandwich makers. It’s everything in between. I mean, frankly, Teddy, journalists are often covered by these, health care workers, engineers, tech workers, just an incredibly wide swath of people and labor markets and industries affected by this non-compete.
TEDDY DOWNEY: And yeah, I’d like to talk about the business. Because I’m a business owner and certainly noncompetes have been frustrating for me. We don’t have them here at the company. We have had a hard time hiring from some of our competitors because of them. How big of a boost do you see this being for small business trying to enter markets?
ELIZABETH WILKINS: Huge. I will point to an enforcement action that we announced the day before we announced our proposed rule. We announced consents with a couple of different companies. Two of them were in manufacturing of sort of glass bottles and other containers. That’s a highly concentrated market. And there were thousands of noncompetes on basically the whole workforce in that industry. That’s a huge barrier to entry for another company that wants to enter the market and compete, which presumably would be good for both workers and consumers if there was another company in there trying to make a better, cheaper product and offering more kind of employment opportunities.
We’ve seen just recently in this sort of aftermath of our announcement, there are all kinds of entrepreneurs, startups, small businesses, who have trouble getting the employees that they need to provide the services or make the goods that they want to because all these workers are locked up. And all the workers who have the kind of knowledge and skill are unavailable.
TEDDY DOWNEY: Yeah, that’s really interesting. Are there any exemptions for workers or specific businesses to the rule?
ELIZABETH WILKINS: So just to be clear, this is a proposal and we’ve asked a lot to comment on how we define it. But as it is proposed now, it would apply to all workers, including independent contractors, paid or unpaid. There is clarity in the rule that we don’t intend it to apply to situations where there’s a sale of a business. That’s a little bit different we think. But other than that, if you’re under the jurisdiction of the FTC, you’re under the jurisdiction of this rule.
TEDDY DOWNEY: And so I think I saw something that it wouldn’t affect nonprofits. Is that accurate?
ELIZABETH WILKINS: That’s an astute question. So you just pointed to my small little caveat there, which is if you’re under the jurisdiction of the FTC. So there are some exemptions to our jurisdiction as an agency. So, of course, we can’t make a rule for entities that aren’t regulated by us. So, for example, the FTC doesn’t regulate banks. And so that’s an industry that wouldn’t be covered by the rule. And there are a couple of exceptions like that.
TEDDY DOWNEY: And in terms of those exceptions. So is there any expectation that those regulators would look to this at all? Or does the FTC communicate with like the Department of Agriculture or the bank regulators? I mean, obviously one of the former commissioners is now at the CFPB and is a bank regulator. Is there any expectation that other agencies could follow the lead here to make it more comprehensive? Or is that not really in the cards?
ELIZABETH WILKINS: Well, every agency has its own authorities. And we have our unique unfair methods of competition authority. So I can’t really speak to other regulators as to whether and how they could cover other industries. What I will say, as a policy matter from our perspective, is we have expertise in a really wide array of markets that are under our jurisdiction. And we made the judgment that it didn’t make sense to make distinctions that the effects that we see of non-competes and the dynamics between workers and employers across the board merited a proposal to ban them everywhere. And that’s our position.
The other thing I would say is there’s obviously a wide array of state laws on the books. And many of those are truly kind of, you know, state legislators have sort of plenary power and other states could follow suit, et cetera, I think. There’s a lot of evidence to suggest that these are really problematic across the board. And there are a lot of workers who are voicing their concerns that they really are, as we say in the proposal, coercive and exploitative of this imbalance of power. And so there’s good reasons for states and other regulators to be looking at what they can do.
TEDDY DOWNEY: I’d like to ask a little bit more about that evidence. I’ve looked at a lot of studies about this over the years. You mentioned one report. There are, I think, a few studies cited in the proposed rule. What studies can you talk about that were influential when you were considering the role and what type of economic effects do they show? I know we’ve talked a little bit about this, but I’d like to dig into it a little bit more.
ELIZABETH WILKINS: Sure. So, this goes to one of the questions that people sometimes which is why now? And one of the things that’s really interesting, if you look at the economic evidence, is there’s really been a sort of explosion of the development of this evidence over the last 20 years. And part of that is because we’ve got some natural experiments to help us understand the economic effects of non-compete economywide. Over the last decade plus, as states have started to pass more laws, we kind of have a natural way to study, well, state A banned noncompetes or banned certain non-competes and state B didn’t. And otherwise, there are labor markets across those state lines. We can watch what happens to wages, to kind of evidence of innovation, whether that’s patent filings or something else, what happens to business creation, et cetera.
So that’s allowed us not just to have survey data from workers on what this feels like or not just to look at one industry, but to really say, okay. Economywide, there was this single intervention in the market. What happened? And there are studies now saying if you kind of look at the measure of enforceability of these contracts across these kinds of state lines, these natural experiments, you see these wage effects, that wages go up when non-competes are less enforceable, that race and gender gaps between wage gaps get narrower. So it’s that kind of evidence that as we surveyed the literature now, we found pretty compelling both to think hard about whether a rule based on our unfair methods of competition authority was warranted, and then also how broad it was kind of based on how broad the range of economic evidence there was.
TEDDY DOWNEY: And the press release mentions a $300 billion impact on wages. And I want to talk about this in terms of being a pocketbook issue for citizens. Is this rule part of a broader initiative to deter different types of wage theft? I know the FTC has a separate initiative on distinguishing between independent contractors and employees. And there’s also—not specific about wages, but there’s an initiative on junk fees, pocketbook issues or wage stuff. Is there a theme here that we can read into in terms of FTC’s priorities?
ELIZABETH WILKINS: One thing I can definitely say is that it is a priority of ours to think of how to use our resources and energy to work on issues that matter most to people. Absolutely. And obviously, that’s within our jurisdiction. We do competition and we do consumer protection. But within that, where are the issues in the marketplace that are affecting people the most in their daily lives is a huge factor for us. And also, sort of what are the market practices that go to the core of what our authorities are meant to be about?
So here we’re talking about a free and fair and competitive labor market. That also goes directly to the wages that American workers can get and the working conditions in which they can work. That’s sort of absolutely squarely within our priorities. And as you say, things like junk fees and other unfair and deceptive fees that people get hit with, absolutely. That’s what we’re here for is to protect consumers and other market participants from predatory and anti-competitive behavior that is affecting their market opportunities.
TEDDY DOWNEY: Okay, great. And I’ve got a couple of listener questions. I want to get to them in a second. But first, you mentioned these are big issues for citizens and you have a comment period. What’s been the reaction so far in the comments?
ELIZABETH WILKINS: So I have to admit I haven’t looked at our comment record specifically, but I am on Twitter and Reddit and all of those and YouTube. And I have been kind of amazed at the wide swath of both workers and consumers who are speaking up to say here’s my personal experience. Either here’s my personal experience under a non-compete. Here’s the job opportunities that it prevented me from taking. Here’s the life circumstances that I was sort of unable to respond to because I couldn’t get that different job. And also consumers. Like just one example. It’s kind of interesting watching the reaction of the pro-wrestling fan community to what this will mean for the entertainment value that they get.
So, yeah, it’s been interesting. The other thing I would just say on a personal note is when you’re in government, you never know what impact your work is having. You get a sense when like your aunt starts emailing you or your friend from college that is not in politics, et cetera. And the number of just notes that I’ve been getting that say, hey, I’m a whatever it is, I’m a psychologist, I’m an engineer, and like here’s my experience with that has been interesting.
TEDDY DOWNEY: I had one of those moments too. One of my best friends is an investment banker. And this non-compete issue has come up repeatedly for him. And he was just like, it’s about time. I mean, he was really happy. I’m not sure if it’s actually going to apply to him because I think he might be – at his bank, I don’t know if it’ll apply to him. But it was kind of funny coming from him, sort of the top, top echelon of earners.
ELIZABETH WILKINS: There you go.
TEDDY DOWNEY: There was a pretty wide, positive reception. So here’s a question from the audience. Could you comment on the meaning and scope of the caveat that the proposed rule does not extend to client or customer non-solicitation agreements.
ELIZABETH WILKINS: Sure. So we have a functional definition in there that says a noncompete is very specifically an agreement not to go work for a competitor or start a competing business. We also say there are other types of agreements that can be functionally non-compete agreements based on their operation. And this is something that we get from the case law.
So, for example, a training repayment agreement. An ordinary training repayment agreement would not be a noncompete. It wouldn’t be covered by this proposal. Unless it was so disproportionate as to be clear that it was functioning as something else. So a training repayment agreement would usually say, hey, we’re going to give you this training. If you leave within the year, you have to pay us back. And the training costs $1,000. And so you’ve got to pay us $1,000. We get back the investment that we made in you.
Say that training repayment agreement for training that cost $1,000 said if you leave within a year, you have to pay us $100,000. That would be, well, maybe this is functionally a non-compete, right? Functionally. And say this is like a security guard. We actually saw—not a training repayment agreement. We actually saw damages of $100,000 in a non-compete agreement for security guards. That’s impossible for this person to pay. They are functionally bound to their job. That’s functionally a non-compete. So your run of the mill training repayment agreement wouldn’t be covered, but something that was incredibly disproportionate might be.
Non-solicitation agreement, in general, not covered. A non-solicitation agreement generally says you can leave, but you can’t solicit—depending on what your business is—the client list or whatever, you can’t take your clients with you. The ordinary non-solicitation agreement not covered. If you could get creative as an employment lawyer and try and write a non-solicitation agreement that was onerous, that based on the way that your business operated, you functionally couldn’t leave because you couldn’t possibly start your own business, maybe it could be covered. But in general, your run of the mill would not be.
TEDDY DOWNEY: And in terms of if you’re a company and you want to protect your trade secrets and legitimate IP—legitimate trade secrets I should say—do you have alternatives to these non-compete?
ELIZABETH WILKINS: Yes, the two clearest examples of alternatives are non-disclosure agreements. If what you’re trying to protect is your confidential information or your trade secrets, non-disclosure agreements says you will learn A, B and C. You may learn X, Y, and Z type of information. You can’t disclose that outside. You can’t disclose it once you leave. And trade secret law. There’s thousands of trade secret lawsuits that are filed every year to do exactly this, to deter and protect trade secret information. Our proposal preliminarily finds that those are adequate substitutes and that, frankly, a non-compete, which is a serious restriction of the worker’s liberty, is a sort of wildly overbroad and blunt instrument to protect those interests.
TEDDY DOWNEY: And we have another question here from the audience. There’s an exemption for 25 percent owners selling business, can be held to noncompetes. Why 25 percent? Why not, for example, a lesser percentage for things like physician practices or other professional services where physician owners sell, but each owns a smaller percentage?
ELIZABETH WILKINS: That’s a great question. And this is one of these things where I will say we really don’t comment. I’ll tell you a little bit about what we’re trying to achieve here. As I said, we’re trying to exempt instances of a sale of a business. That’s a little bit different than an employerworker relationship. That said, there’s like a lot of different ways that you can own a business. As the commenter noted, physician’s practices look different than other businesses, et cetera.
What we’re trying to do is draw on other areas of law to say how can we draw a line between something that really looks like selling a business versus somebody who really is a worker, an employee, who has some small share of the company going somewhere. We want to make sure that we’re not creating a loophole whereby I give you some stock and I therefore can bind you by a non-compete because you’re now kind of an owner, but also understand that like many companies are not owned by one person, et cetera. So how do we make some kind of distinction that best approximates what we’re trying to do, which is exempt sale of a business? And as I said, we welcome comments. So to the degree that there are circumstances that would work better or worse with that definition, we’d really love to hear about it.
TEDDY DOWNEY: Here’s another question from the audience. What is the FTC considering within the scope of non-compete? For example, the rule discusses some payments to be returned to the employer in the event of an employee leaving. Does the FTC anticipate a complete ban on returning bonuses or other incentive rewards for staying with the employer within the proposed rule?
ELIZABETH WILKINS: I don’t think so. But I would just say again here is an instance where commentary on the range of arrangements that employers and employees make would be very helpful to make sure that we’re not drawing lines that we don’t intend to.
TEDDY DOWNEY: And then here’s a question from the audience that I was going to ask also, which is what’s your response—you can’t probably get into it too much—to the sort of questions of the FTC’s legal authority? I’m sure you get that a lot. Major questions on delegation doctrine have been sort of default arguments here. What’s your take on what the critics are saying there?
ELIZABETH WILKINS: I think that our legal authority here is pretty clear. If you read our statute and our amendments to our statute, it clearly says we have the power to make rules with respect to unfair methods of competition. It even sets out some procedural matters with respect to that. And those are there are laws that were passed by Congress. We’ve done it before. We have been affirmed by a circuit court in our authority to do so. And more broadly, I would say this is a power that Congress clearly gave us. It’s a subject matter over which we have clear both expertise and authority.
And in some sense, we’re sort of obligated to do it. If Congress asks us to regulate unfair methods of competition, gave us this authority, we are particularly well suited with a full Bureau of Economics to study issues like this. And we have studied and found widespread competitive harm. Then I would say, far from sort of not having the authority to do it, I would say we have a real impetus and potentially obligation to think seriously about what we can do with our rulemaking authority to address that issue.
TEDDY DOWNEY: Okay. And I could spend a long time talking about the nondelegation and major questions doctrine, but that’s probably for another conference call down the road. But we’ve got another question here from the audience, and I’ve got one more after that and then we’ll let you go. But what about no hire agreements? For example, physician staffing company has noncompetes with doctors and employees and a no hire agreement with the hospital the staffing company contracts with. So even if the FTC’s non-compete rule is enacted, if no hire agreements stay in place, that hospital can’t hire doctors even if they’re no longer bound by non-competes.
ELIZABETH WILKINS: That’s a great question. No hire agreements, no poach agreements, are also of serious competitive concern. Depending on how they’re written, they may not come specifically within the ambit of the rule. But that doesn’t mean that employers who engage in no poach agreements are not subject to antitrust liability. This has been a real focus for the Department of Justice. We have joint guidance on no poach agreements. And the Department of Justice has been quite active, I think, in enforcing in this area. So just because this rule is focused on non-compete clauses doesn’t mean that there isn’t potential liability for other types of end of agreements.
TEDDY DOWNEY: Okay. And I’ve got one last question here for you. This is kind of a twopart question. For TRAs, can you go into a bit more detail about what will constitute a TRA that is reasonably related to job training costs? You mentioned the security guard being asked to pay $100,000. And that’s pretty straightforward. But how will you think about borderline situations? There’s a second part.
ELIZABETH WILKINS: Oh, sorry. If you want to do the second part.
TEDDY DOWNEY: No, answer that. And then if it’s okay, I’ll ask the second part and then we can wrap up.
ELIZABETH WILKINS: Of course. That’s a great question. And in thinking about writing it, we looked, as I said, to state law that’s applied some principles. So I think that’s a good place to start. Cases that have found other agreements to be de facto, non-compete agreements are good guidance. I think we will also look to the comment record to see whether we get useful guidance from the public on the kinds of agreements that exist and what we should be on the lookout for.
TEDDY DOWNEY: And then the second part is how will the FTC enforce this rule as it relates to job training debt? As we’ve seen with traditional non-competes, even when they’re made unenforceable, workers rarely know that. Meaning that even if these terms aren’t enforced, they have the same chilling outcome. I imagine part of that is addressed by the requirement that the employer tells the employees that they can’t have a non-compete. But is there anything else that you’d like to discuss about job training debt?
ELIZABETH WILKINS: Yeah, that’s exactly right, Teddy. One of the reasons behind the requirement to affirmatively tell workers that they’re no longer bound is exactly because—I actually find this quite disturbing—that there’s some evidence that non-compete clauses are just as prevalent in states where they are unenforceable as in states where they are. And I don’t think it’s appropriate for the burden to be on a worker to have to try and figure out that this document that was written by a lawyer, it turns out, is unenforceable against them.
And exactly right, from your commentor, that if that worker doesn’t know the law, then that clause may have just the same effect on their concern about getting another job. They’re concerned about speaking up to try and get better working conditions or wages at their own job, knowing that they could leave if they wanted to or were unsatisfied, that that may have exactly the same chilling effect and exactly the same sort of dampening effect both on labor market dynamism and on workers’ wages, et cetera, because of those clauses. So we want to make sure that workers know that they’re not bound by these.
TEDDY DOWNEY: Well, Elizabeth, I can’t thank you enough for doing this. You’ve fielded calls from all over the map here. I think it goes to show how big of an impact this role is going to have. I imagine it will be finalized and all the work that you’ve put into it, it seems like you have done a lot of rigorous research on this and. Thank you so much.
ELIZABETH WILKINS: Oh, it’s been my pleasure. Thanks so much for having me.
TEDDY DOWNEY: And thanks to everyone for joining the call today. And this concludes the call.