Erik W. Weibust and Stuart M. Gerson, Members of the Firm in the Litigation & Business Disputes and Employment, Labor & Workforce Management practices, co-authored an article in Law360, titled “Noncompete Report Misinterpreted Critique of FTC Proposal.” (Read the full version – subscription required.)
Following is an excerpt (see below to download the full version in PDF format):
In October 2023, Evan Starr, a labor economist and professor at the Robert H. Smith School of Business at the University of Maryland, published a report on behalf of the Economic Innovation Group.
The report is titled "Noncompete Clauses: A Policymaker's Guide through the Key Questions and Evidence," and in it Starr refers to and critiques our January 2023 Law360 guest article, titled "FTC's Noncompete Proposal Is Based On Misrepresentations."
In our experience, Starr is very thoughtful, honest and open-minded, and has no preconceived notions about noncompetes. Nevertheless, we take issue with a few of Starr's critiques of our article and its basic thrust, which we will address here in a friendly effort to continue the important debate over the use and enforcement of noncompetes.
In our article we discussed the Federal Trade Commission's various purported bases for its proposed rule that would ban noncompetes nationwide, specifically its claims that:
- "Noncompetes are regularly enforced against low-wage workers, such as fast-food workers, arborists and manual laborers";
- "Noncompete clauses systemically drive down wages, even for workers who aren't bound by one";
- "Noncompete clauses tend to make markets less competitive" and "reduce entrepreneurship and start-up formation"; and
- "Noncompetes lead to higher prices for consumers by reducing competition."
Starr's critique of our commentary focuses on claims 1 and 4, in particular.
Early in his report, Starr says, "Weibust and Gerson (2023) argue that because noncompetes are required to be narrowly tailored to be enforceable and because they must protect ... legitimate business interests (e.g., trade secrets), the use of noncompetes among low-wage workers or workers without any business justification are outliers."
We are in good company, as Starr's report goes on to cite former FTC Commissioner Christine Wilson for the same proposition. He then concludes: "A growing body of empirical evidence suggests that we should be skeptical that status quo state enforcement policies sufficiently address the potential harms of noncompetes, or that noncompetes are associated with the many benefits that advocates suggest." He later refers to such advocates as "pro-noncompete advocates."
Starr's report gets a few things wrong here.
First, to imply that we are pro-noncompete advocates misconstrues our article and our stated views. To be clear, we are agnostic as to whether noncompetes should be enforceable; the fact is, they are in most states, and have been for generations.
Although we believe that noncompetes can be a valuable tool when used appropriately to protect a company's legitimate business interests, we would still have plenty of work to do if they were banned nationally. We have stated this publicly many times. Indeed, we made this clear in our article.
In other words, we simply suggested that the FTC should be truthful and transparent with the American public when attempting to promulgate a rule to alter a substantial part of the U.S. economy and upend hundreds of years of state law — especially when employing questionable, recently claimed powers that have never before been used in this manner.
Which brings us to the second mistake in Starr's critique of our article. He misinterprets what we wrote concerning the use and enforcement of noncompetes with low-wage workers, insinuating that we overstated the benefits and downplayed the potential harms of noncompetes. We did not do so.
Indeed, we believe that protections for low-wage workers are appropriate. We simply wrote that there is no conclusive evidence that the use of noncompetes with low-wage workers is the norm. …
