Hannah Garden-Monheit Letter to Pennsylvania Legislature Regarding HB 1633

Office of Policy Planning
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
June 3, 2024
VIA ELECTRONIC MAIL
The Honorable Dan Frankel 	The Honorable Art Haywood
Representative 	Minority Chair
Pennsylvania House of Representatives 	Pennsylvania Senate Health & Human
Services Committee
The Honorable Michele Brooks
Chair
Pennsylvania Senate Health & Human
Services Committee
Re: HB 1633
Dear Rep. Frankel, Senator Brooks, and Senator Haywood:
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 Pennsylvania legislature is considering HB 1633, the Fair Contracting
for Health Care Practitioners Act (“the Bill”) that, among other things, restricts the use of
noncompetes for certain health care practitioners. On April 23, 2024, the Commission
approved a final rule under the FTC Act banning noncompete clauses.1 The rule and other
materials that you may find helpful—including a summary, fact sheet, and compliance
guide—are posted on the FTC website.2
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
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 the federal rule.3
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.4 Many workers
1 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 FTC, Noncompete Rule, https://www.ftc.gov/legal-library/browse/rules/noncompete-rule.
3 89 Fed. Reg. at 38454.
4 Id. at 38344.
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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.5 Many of
the comments were from workers, businesses, and others in Pennsylvania—including many
health care practitioners. You can find such comments on the FTC’s public docket at
Regulations.gov.6
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.7 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.8 Another analysis of the
same data found that 53% of workers covered by noncompetes are hourly workers.9
Noncompetes are pervasive in health care. One study found that 45% of physicians worked
under a noncompete.10 A study of noncompetes in physician markets found that such
clauses lead to greater concentration and higher prices for consumers.11 The Commission
specifically found that noncompetes increase healthcare costs.12
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.13
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.14
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.15 The Commission estimates that its rule will increase
workers’ earnings by $400-$488 billion over the next decade, and that in Pennsylvania an
average worker will earn $596 more per year.16
The Commission further found that noncompetes negatively affect competitive conditions
in markets for products and services, inhibiting new business formation, decreasing
5 Id. at 38344-45, 38389-94.
6 The comments are available and searchable by state at Regulations.gov,
https://www.regulations.gov/document/FTC-2023-0007-0001/comment.
7 89 Fed. Reg. at 38343, 38346.
8 Id. at 38346.
9 Id.
10 Id. (citing Kurt Lavetti, Carol Simon, & William D. White, The Impacts of Restricting Mobility of Skilled
Service Workers Evidence from Physicians, 55 J. HUM. RES. 1025, 1042 (2020)).
11 89 Fed. Reg. at 38398 (citing Naomi Hausman & Kurt Lavetti, Physician Practice Organization and
Negotiated Prices: Evidence from State Law Changes, 13 AM. ECON. J. APPLIED ECON. 278 (2021)).
12 89 Fed. Reg. at 38447.
13 Id. at 38374-79.
14 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).
15 See id. at 38382-87.
16 Id. at 38469-70, 38474, 38505-06 (App., Table A1).
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innovation, and raising prices.17 The Commission estimates that its rule will increase new
business formation by 2.7%, creating over 8,500 new businesses each year.18 Innovation
will also increase, leading to about 17,000-29,000 new patents each year on average.19
Through increased competition and innovation, consumers will have access to better
products and lower prices.20 For example, the Commission estimates that the rule will
reduce health care costs by $74-$194 billion over the next decade in reduced spending on
physician services.21
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.22 The Commission found that employers can use trade
secret law and reasonable non-disclosure agreements to protect legitimate intellectual
property interests.23 Roughly 95 percent of workers with non-competes are already subject
to non-disclosure agreements.24 The Commission also found that employers can protect
their investments in worker human capital, including training, by entering into fixed
duration employment contracts.25 They can also compete on the merits to retain workers by
offering higher wages and better jobs.26
State Laws Can Be a Potent Supplement to the Rule
The final rule sets forth its relation to state laws and its preservation of state authority in
detail in Section VI.27 As the Commission explains in the final rule, states can continue to
play a critical role in restricting the use of noncompetes.
State restrictions are especially important with regard to employers or activities that are
outside the FTC’s jurisdiction—including, among others, certain healthcare non-profits.28
Thus, state laws can fill gaps with respect to noncompetes that are beyond the FTC’s
jurisdiction.29
Moreover, states’ noncompete laws, unlike the FTC Act, may provide for a private right of
action and/or monetary penalties.30 State penalties can be substantial and may be particularly
important as a deterrent, as can parallel enforcement of state laws.31
17 See id. at 38388-402.
18 See id. at 38433, 38485; FTC, Noncompete Rule, https://www.ftc.gov/legal-
library/browse/rules/noncompete-rule.
19 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.
20 Id. at 38380, 38408.
21 Id. at 38470, 38478.
22 See id. at 38421-34.
23 Id. at 38424-26.
24 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).
25 89 Fed. Reg. at 38426.
26 Id.
27 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).
28 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.
29 89 Fed. Reg. at 38453-55; see also id. at 38449.
30 Id. at 38452-54.
31 Id. at 38454.
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As the Commission explains in the final rule, the rule does 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.32 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.33
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 the Fair Contracting for Health Care Practitioners Act.
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
32 Id. at 38452-54.
33 Id. at 38453-55.
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