UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

FEDERAL TRADE COMMISSION

WASHINGTON, D.C. 20580

Office of Policy Planning

January 14, 2025

VIA ELECTRONIC MAIL

The Honorable Liz Berry

Representative

The Washington House of Representatives

The Honorable Amy Walen

Representative

The Washington House of Representatives

Re: H.B. 1155

Dear Representatives Berry and Walen:

I write this letter as the Director of the Federal Trade Commission’s (“FTC”) Office of

Policy Planning, the FTC office that provides advocacies and submits filings supporting

competition and consumer protection principles to state legislatures, regulatory boards, and

officials.

I understand that the Washington legislature is considering H.B. 1155 (“the Bill”) that,

among other things, would make all noncompete covenants void and unenforceable. On

April 23, 2024, the Commission approved a final rule under the FTC Act banning

noncompete clauses. 1 The rule has not come into effect at this time, because a Texas

district court issued an order stopping the FTC from enforcing the rule. The FTC has

appealed that decision. 2

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I write to highlight a number of the Commission’s evidentiary findings that you may find

informative as you consider the Bill. This letter also explains that, consistent with the

Commission’s long history of working in concert with states and encouraging concurrent

enforcement of state laws to pursue common goals, state-based enforcement against

noncompetes can be a potent force that supplements a federal rule. 3 The rule and other

materials that you may find helpful—including a summary, fact sheet, and compliance

guide—are posted on the FTC website. 4

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Non-Compete Clause Rule, 89 Fed. Reg. 38342 (May 7, 2024) (to be codified at 16 C.F.R. part 910),

https://www.federalregister.gov/documents/2024/05/07/2024-09171/non-compete-clause-rule.

2

The district court’s decision does not prevent the FTC from addressing noncompetes through case-by-case

enforcement actions.

3

89 Fed. Reg. at 38454.

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FTC, Noncompete Rule, https://www.ftc.gov/legal-library/browse/rules/noncompete-rule.

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Evidence of the Harmful Effects of Noncompetes

Many Americans are affected by noncompetes and support banning them. After the

Commission proposed to ban noncompetes, the Commission received more than 26,000

comments. Of those, approximately 25,000 favored a categorical ban. 5 Many workers

described how noncompetes blocked them from taking a better job, negotiating better pay,

or starting a business. Many entrepreneurs and small businesses also described how

noncompetes prevented them from starting a business or hiring qualified workers. 6 Many of

the comments were from workers, businesses, and others in Washington. You can find such

comments on the FTC’s public docket at Regulations.gov. 7

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The evidence shows that noncompetes are used extensively, including even for low-wage

workers. The Commission found that nationwide, approximately one in five workers—or

thirty million Americans—are bound by noncompetes. 8 One survey found that 35% of

workers without a bachelor’s degree and 33% of workers earning less than $40,000 per

year have worked under a noncompete at some point in their lives. 9 Another analysis of the

same data found that 53% of workers covered by noncompetes are hourly workers. 10

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Noncompetes restrict workers’ fundamental freedom to leave for a better job or to start their

own business. Based on empirical research and public comments, the Commission found

that noncompetes are exploitative and coercive for all workers except for senior executives.

For almost all workers, non-competes are unilaterally imposed, typically without

negotiation or compensation, and force workers to remain in jobs and bear significant

harms and costs. 11

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Based on the extensive empirical evidence, the Commission found that noncompetes tend

to negatively affect competitive conditions in both labor and product and service markets. 12

The Commission found that because noncompetes decrease mobility and competition in the

labor market, they suppress wages not only for the workers subject to them, but also for

workers who are not subject to them. 13 The Commission estimates that its rule would

increase workers’ earnings by $400-$488 billion over the next decade, and an average

worker will earn $524 more per year and that in Washington an average worker will earn

$744 more per year. 14

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The Commission further found that noncompetes negatively affect competitive conditions

in markets for products and services, inhibiting new business formation, decreasing

innovation, and raising prices. 15 The Commission estimates that its rule would increase

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Id. at 38344.

Id. at 38344-45, 38389-94.

7

The comments are available and searchable by state at Regulations.gov,

https://www.regulations.gov/document/FTC-2023-0007-0001/comment.

8

89 Fed. Reg. at 38343, 38346.

9

Id. at 38346.

10

Id.

11

Id. at 38374-79.

12

The Commission assessed the numerous empirical studies that have been conducted on noncompetes and

explained the weight it gave to each study. See id. at 38374-424; see also id. at 38372-74 (explaining the

Commission’s analytical framework for assessing the empirical evidence).

13

See id. at 38382-87.

14

Id. at 38469-70, 38474, 38505-06 (App., Table A1).

15

See id. at 38388-402.

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new business formation by 2.7%, creating over 8,500 new businesses each year. 16

Innovation would also increase, leading to about 17,000-29,000 new patents each year on

average. 17 Through increased competition and innovation, consumers would have access to

better products and lower prices. 18 For example, the Commission estimates that the rule

would reduce health care costs by $74-$194 billion over the next decade in reduced

spending on physician services. 19

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In adopting the rule, the Commission assessed employers’ claimed justifications for

noncompetes and found that employers have several viable alternatives that do not impose

the same burdens on competition. 20 The Commission found that employers can use trade

secret law and reasonable non-disclosure agreements to protect legitimate intellectual

property interests. 21 Roughly 95% of workers with noncompetes are already subject to nondisclosure agreements. 22 The Commission also found that employers can protect their

investments in worker human capital, including training, by entering into fixed duration

employment contracts. 23 They can also compete on the merits to retain workers by offering

higher wages and better jobs. 24

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State Laws Can Be a Potent Supplement to a Federal Rule

The final rule sets forth its relation to state laws and its preservation of state authority in

detail in Section VI. 25 As the Commission explains in the final rule, states can continue to

play a critical role in restricting the use of noncompetes, even if the FTC’s rule comes into

effect.

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State restrictions are especially important with regard to employers or activities that are

outside the FTC’s jurisdiction, such as banks, savings and loan institutions, federal credit

unions, common carriers, air carriers, persons subject to the Packers and Stockyards Act of

1921, and certain non-profits—including, among others, certain healthcare non-profits. 26

Thus, state laws can fill gaps with respect to noncompetes that are beyond the FTC’s

jurisdiction. 27

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Moreover, states’ noncompete laws, unlike the FTC Act, may provide for a private right of

action and/or monetary penalties. 28 State penalties can be substantial and may be particularly

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See id. at 38433, 38485; FTC, Noncompete Rule, https://www.ftc.gov/legallibrary/browse/rules/noncompete-rule.

17

This reflects an estimated increase of about 3,000 to 5,000 new patents in the first year noncompetes are

banned, rising to about 30,000-53,000 in the tenth year. See 89 Fed. Reg. 38476.

18

Id. at 38380, 38408.

19

Id. at 38470, 38478.

20

See id. at 38421-34.

21

Id. at 38424-26.

22

See id. at 38426 (citing Natarajan Balasubramanian, Evan Starr, & Shotaro Yamaguchi, Employment

Restrictions on Resource Transferability and Value Appropriation from Employees (Jan. 18, 2024),

https://papers.ssrn.com/sol3/papers.cfin?abstract_id=3814403).

23

89 Fed. Reg. at 38426.

24

Id.

25

See id. at 38452-55. See also id. at 38504-505 (Relation to State Laws and Preservation of State Authority

and Private Rights of Action, to be codified at 16 C.F.R. § 910.4).

26

See id. at 38355-58; 38454; FTC, Noncompete Clause Rule: Business and Small Entity Compliance Guide

2, https://www.ftc.gov/system/files/ftc_gov/pdf/Business-and-Small-Entity-Compliance-Guide-updated.pdf.

27

89 Fed. Reg. at 38453-55; see also id. at 38449.

28

Id. at 38452-54.

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important as a deterrent, as can parallel enforcement of state laws. 29

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As the Commission explains in the final rule, the rule would not preempt state laws that

restrict noncompetes and do not conflict with it, including both broader state prohibitions and

state prohibitions that are narrower in scope. 30 That is, state laws cannot authorize

noncompetes that are prohibited by the rule, but states may, for example, continue to pursue

enforcement actions under their laws prohibiting noncompetes even if the state law prohibits a

narrower subset of noncompetes than the FTC’s rule. 31

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In short, the FTC’s rule does not negate the value of state laws that restrict noncompetes.

Rather, such laws can play an important role in the battle against harmful noncompetes.

I hope that the Commission’s research, analysis, and findings concerning noncompetes are

valuable to you as you consider H.B. 1155. Please do not hesitate to reach out if my office

can be of further assistance.

Sincerely,

Hannah Garden-Monheit

Hannah Garden-Monheit

Director

Office of Policy Planning

Id. at 38454.

Id. at 38452-54.

31

Id. at 38453-55.

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