ICYMI: At Hearing, Warren Slams Noncompete Agreements as Unfair, Un American, and Anti Competitive

July 31, 2024

ICYMI: At Hearing, Warren Slams Noncompete Agreements as Unfair, Un-American, and Anti-Competitive

The Federal Trade Commission (FTC) recently moved to ban noncompetes, a win for over one hundred million workers

Opening Remarks (YouTube) | Watching Hearing (Banking Committee Website)

Washington, D.C. - Yesterday, chairing a hearing of the Senate Banking Subcommittee on Economic Policy, Senator Elizabeth Warren (D-Mass.), celebrated the Federal Trade Commission's historic move to ban noncompete agreements that suppress wages, squash innovation, and keep trapped workers in dead-end jobs with no hope of moving up.

Senator Warren questioned three witnesses on their personal experiences with noncompete clauses preventing them from practicing their trade, and on the overall economic impact of noncompete agreements and benefits of the FTC's rule to ban them.

Dr. Heidi Shierholz, President of the Economic Policy Institute, testified that noncompetes reduce business formation and worker mobility, which in turn raises prices and reduces productivity, innovation, and worker wages. Dr. Shierholz also testified that the Chamber of Commerce and big corporations are pushing back against the FTC's rule to ban noncompetes because they benefit from stifling competition through these agreements. Additionally, these agreements allow big corporations to pay workers less and prevent workers from being able to find better jobs.

Dr. R. James Toussaint, a specialized orthopedic surgeon, shared his story with a noncompete agreement he entered into when his medical practice was bought by a private equity company. The agreement restricted him from practicing orthopedic surgery for two years after leaving within 25 miles of any facility in which his previous employer did business, any facility where they'd previously done any business, and any facility his former employer was targeting for expansion. He was also required to provide a copy of his noncompete agreement to any potential future employer, making clear that any potential employer would need to buy out his agreement to hire him. This agreement severely restricted his ability to provide care to the communities - rural, underserved areas - that relied on his specialty.

Ms. Hayley Paige, a bridal gown designer and small business founder who rose to fame on TLC's "Say Yes to the Dress," shared that her previous employer sued her to enforce a noncompete agreement. The agreement prevented her from practicing her trade designing wedding dresses for years.

Senator Warren underscored that the FTC's noncompete ban is very popular among everyday Americans and small business owners. Banning noncompetes will increase workers' earnings by approximately $400 billion over the next decade. The rule will also make the American economy more dynamic and innovative, with 8,500 more new businesses and tens of thousands more new patents each year.

Opening Statement
U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy: "Banning Noncompete Agreements: Benefits for Workers, Businesses, and the Economy."
Tuesday, July 30, 2024
As Prepared for Delivery

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 a better life.

But, over the years, powerful corporate interests have worked to take away that freedom from America's workers. One of the ways they do this is through "noncompete clauses." These are terms inserted into the fine print of contracts to prohibit workers from joining or starting a competing business.

Currently, these agreements hold back 30 million Americans - about one in five American workers. They affect workers from software engineers to doctors to hair stylists to doggy daycare workers.

Noncompete clauses suppress wages, prevent mobility, and keep workers in dead-end jobs with no hope of moving up. They hurt the economy as a whole, slowing innovation, inhibiting new business formation, and raising consumer prices.

Noncompete clauses hurt all workers, but they have their worst impact on women, non white workers, and workers with less education.

These agreements are unfair and un-American. And they are, on the plain face of it, anti-competitive. 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.

That's why I was pleased when in April, the Federal Trade Commission finalized a new rule to protect more than one hundred million workers by prohibiting employers from forcing workers into noncompete agreements.

This rule is another example of the Biden-Harris Administration acting to rein in corporate abuse and make 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.

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% of the comments that FTC received on the proposed rule were favorable. And it's no wonder. FTC's analysis shows that it will increase workers' pay by an average of over $500 per 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 per 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've heard me say it before, and I'll say it again - I believe in markets - competitive markets. This rule makes 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 this rule.

Republicans in the House have introduced a Congressional Review Act resolution to overturn the FTC's new noncompete rule. Of course, if it managed to pass the House and 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. The Chamber of Commerce and other corporate trade groups have gone court-shopping to put the case before a 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 an 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 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 common-sense rules that will help Americans and the 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, non-partisan interpretation of the law would make it clear that Congress explicitly gave the FTC the authority to ban non-competitive restraints of trade - including noncompete agreements that keep workers from looking for a better job.

In today's hearing, we'll hear more why the legal effort to roll back the rule is wrong - and about how, once the rule is finally implemented, millions of workers will benefit.

I appreciate our witnesses and my colleagues joining us today.

Round 1 Questions: Negative Effects of Noncompete Agreements

Senator Elizabeth Warren: 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 starting a competing business or going to work for another employer.

So, a worker with a noncompete faces two bad options. Stay stuck in a job you want to leave. Or upend your life to break free of 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. Can you just say a little bit more? You talked about this a bit in your opening statement. How broad was that noncompete? 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, and what all did it cover?

Dr. R. James Toussaint, MD FAAOS, Orthopedic Surgeon: 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 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 I'm currently living in - which is Florida - and then any facility that they have had discussions with, in thinking of acquiring in the future.

This would be valid for approximately two years. We are 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 were within rural counties. I thought that was insane.

Senator Warren: 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 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 when you tried to accept the job?

Dr. Toussaint: 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. That is essentially like a scarlet letter, or basically a mark against me to say that, "if you want to hire this doctor, despite his specialized training, you are going to have to go through us, and we are in multiple areas across the United States."

Senator Warren: 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.

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?

Dr. 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.

Senator Warren: 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% of physicians across this country who are currently bound by noncompetes. 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. You had folks on your side who were able to weigh in, so 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 say something about what that meant, both for you and for your brides?

Ms. Hayley Paige, Small Business Founder and Wedding Dress Designer: 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, it was almost as if we are putting a veil over what is really happening.

In my experience, it was truly difficult to imagine how you could communicate and make that connection to a bride, not only could I not express myself in the way I thought I could, but I couldn't even use my name or practice the trade. It was interesting, too, from the business perspective, because we are a wholesale business, and all of these stores had invested specifically in a designer collection. 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?" Obviously, when you invest that kind of money in your business and you are unable to sell the merchandise or feel ethically icky in doing so, it creates a really big void in the marketplace.

Senator Warren: So - hard on patients, hard on brides, hard on 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 it, though? 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 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 say a little bit about how that feels?

Ms. Paige: Thank you for your question, Senator Warren. It was soul crushing. What is 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 from 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.

In that moment I realized how much of my identity came from my craft. I think when you devote yourself to a craft, part of you becomes that craft. It really did feel like a severing of who I was. I am so grateful for this 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. 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 who want to see you do it but then you can't deliver, it is emotional and devastating.

Senator Warren: So, Dr. Shierholz, you've just heard from two people who have lived through experiences with noncompetes. Each of them have fought back and mustered communities around them and were able to hit back. Talk a little bit about the effect of these noncompetes across our economy.

Dr. Heidi Shierholz, President of the Economic Policy Institute: The things that Ms. Paige and Dr. Toussaint experienced are all too common. noncompetes restrict workers' ability for starting a business, practicing their craft in their community, for taking another job. Economy-wide, 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 reduce worker wages. We can see how this played out in these folks' lives and when you look more broadly at the economy, it is incredibly harmful in all measures.

Senator Warren: I'm very grateful to you two for telling your stories and very grateful to you, Dr. Shierholz for just describing it and putting it in the context of 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.

Round 2, Part 1 Questions: Benefits of the FTC's Ban

Senator Warren: One of the things I want us to turn to now - I'm just going to give myself a second round of questions since I don't have anyone competing with me for this time. 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 start new businesses, employers are going to have to change what they do. They're going to have to actually 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 can take home. The American economy will be more dynamic and innovative with about 8500 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 get this massive economic boom because the FTC has designed the ban to be extremely simple. It says no new noncompetes at all. It is not fussy. 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. What they say is they can do the rule but they want the rule that is narrower and more complex. More like Senator Kennedy was talking about - maybe a case here or 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. 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?

Dr. Toussaint: Thank you for the question. Number one, it is important to realize that this private equity company was not based in Florida. Their tactic is to file suit outside of their jurisdiction and outside of my own jurisdiction. 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 walk away before a judgment was even rendered. In a scenario like that, you can imagine the doctor's resources would not be as sufficient as the private equity firm's resources, and they can run it dry. Even though eventually I might win, it is unclear if I would even last that long.

Senator Warren: So, part of the problem we've got here is that the litigation itself is expensive and they have found ways to make it even more expensive. I take it, Ms. Paige, that was what you ran into?

Ms. Paige: Precisely.

Senator Warren: Right. Just drive up the cost and grind you down into the dirt. So the threat of the noncompete is big and important. It is also a question of who is 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.

Senator Warren: It was you, right? What about you, Dr. Toussaint?

Dr. Toussaint: Same here.

Senator Warren: You had to bear your own legal bills. The FTC has said we are going to have a nationwide simple rule. It's going to be a nationwide rule. You don't get to go sue in some other state and think you will avoid some local rule.

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 is the idea behind this. I see you smiling Dr. Toussaint. That sounds like a good thing.

I want to point out one more thing. 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. I just want to say, not everyone sits around in the evening and says, "hey what are we going to do tonight? I know, let's go do a noncompete rule comment on the FTC website."

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 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.

Round 2, Part 2 Questions: Benefits of the FTC's Ban

Senator Warren: I just have one last question I want to take a look at. You listen to stories like Dr. Toussaint and Ms. Paige and it seems so obvious that we should ban these and that we should not ask people to litigate them, even when they have 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 - 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. Dr. Shierholz, we've talked about whether there is any legal basis for it. I think 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 have gone down to this Trump-appointee judge in Texas and are trying to fight this. 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?

Dr. Shierholz: It's because of who they represent. They represent business owners, often very big business owners. 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 businesses who will 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. They are actually much better off with noncompetes. It's totally reasonable why these business groups are fighting tooth and nail to keep their noncompetes, but that does not mean they are good for the economy. It does not mean that they are good for the country. They are not. They are bad for the vast majority.

Senator Warren: I think your point is a really strong point. It's not only that they want to treat their workers however they want and all the worker can do is say, "okay, I won't work at all." That's obviously not a solution. It's also a way for these giant businesses to make sure they don't have any competition. That Hayley Paige wedding designs are not out there competing with whatever business they want to have in the wedding 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 sets this up wants to continue to reap all the profits of a noncompetitive market. And that's a key part of what's going on here.

Closing Remarks

Senator Warren: 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 had a noncompete clause, or worse yet may actually be subject to a noncompete clause but will not discover it until the day comes they want to work somewhere else or they want to start their own business or they have some terrific idea and want to link up with a couple of partners and build something new and discover they are not able to do that.

I so appreciate what the FTC and the Biden-Harris administration is doing to 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.

Thank you very much for being here. I am grateful to you for coming to this hearing. Questions for the record are due one week from today. That's Tuesday, August 6. For our witnesses, if there are additional questions, you will have 45 days to respond to any of those questions. With that, this hearing is adjourned.

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