FTC Hearing #3 GMU Competition and Consumer Protection in the 21st Century
I urge the Commission to consider a rulemaking on restrictive covenants in labor-related agreements. Courts in states that permit agreements that restrain people from changing jobs or starting their own business have proven manifestly incapable of administering them, often deeming vaguely-phrased justifications such as loss of goodwill automatically sufficient without any further analysis rather than actually conducting a rule of reason analysis to determine if the covenants violate antitrust law. Just last week, a court in Massachusetts enjoined a low-paid janitor from switching to a better job, relying only on the former employer's assertions that its employees leaving would harm its goodwill. The Commission should conduct a rulemaking to adopt a federal requirement similar to California Business & Professions Code section 16600, which creates a per se prohibition on anticompetitive labor agreements (except in connection with the sale of a business) and protects the right to change jobs or start a competing company. Section 16600 has been credited with allowing the growth of Silicon Valley over competing tech hubs, because in Silicon Valley, employees could leave to create start-ups, while in places such as Route 128 in Massachusetts, incumbent companies could prohibit their employees from starting their own businesses, often for years after they left. Alternatively, the Commission should adopt rules emphasizing that if states wish to allow "reasonable" restrictive covenants, the reasonableness of the restriction must be determined through a proper rule of reason analysis and not simply by accepting generalized assertions of justifications at face value. The Commission should also consider adopting a requirement that employees continue to be paid during their period of "garden leave" to deter companies from using restrictive covenants on a blanket basis to effectively create a monopsony relationship with their employees through threat of litigation. The Commission should also require companies to disclose to their employees when they have adopted agreements with other employers that are not naked no-poach agreements but that do restrict employees freedom to sell their labor to someone else - for example, in many sectors (with IT services being a particularly notorious one), companies that do business with one another include broad no-hire clauses in their agreements that may effectively render it impossible for employees to change jobs within their sector. For example, many Business-to-Business (B2B) software companies also sell their software and support services to other B2B software companies, and include in their standard license and support agreements broad no-hire provisions. That essentially results in no employee of a B2B software company being able to change jobs to another B2B software company, or any of their company's other customers - and many of them do not know why their resumes are not being considered by the most natural competitors for their labor.