1 00:00:03,200 --> 00:00:07,960 Speaker 1: This is Bloomberg Law with June Brussel from Bloomberg Radio. 2 00:00:09,320 --> 00:00:13,080 Speaker 1: When Tesla's CEO, Elon Musk, the second richest man in 3 00:00:13,119 --> 00:00:16,439 Speaker 1: the world, hosted Saturday Night Live in May, he made 4 00:00:16,440 --> 00:00:20,440 Speaker 1: fun of his controversial tweets and revealed being diagnosed with 5 00:00:20,520 --> 00:00:24,280 Speaker 1: Asperger syndrome. Look, I know I sometimes say or post 6 00:00:24,320 --> 00:00:26,920 Speaker 1: strange things, but that's just how my brain works. To 7 00:00:27,040 --> 00:00:30,280 Speaker 1: anyone I've offended, I just want to say I reinvented 8 00:00:30,440 --> 00:00:32,960 Speaker 1: electric Carson. I'm sending people to Mars and our rocket ship. 9 00:00:37,720 --> 00:00:39,320 Speaker 1: Did you think I was also going to be a 10 00:00:39,400 --> 00:00:43,600 Speaker 1: chill normal dude. Musk starred in another kind of performance 11 00:00:43,680 --> 00:00:46,760 Speaker 1: this week in a Delaware courtroom where he was not 12 00:00:46,840 --> 00:00:51,560 Speaker 1: as self deprecating or revealing He's being sued by shareholders 13 00:00:51,640 --> 00:00:57,280 Speaker 1: over Tesla's controversial takeover of Solar City, joining me as 14 00:00:57,360 --> 00:01:00,600 Speaker 1: Christal Mesh, Bloomberg legal reporter who was in the courtroom 15 00:01:00,640 --> 00:01:04,120 Speaker 1: for his testimony. Was he the star witness not only 16 00:01:04,200 --> 00:01:07,320 Speaker 1: due to his celebrity but also the most important witness? 17 00:01:07,840 --> 00:01:10,520 Speaker 1: Oh yes, he was definitely the most important and central 18 00:01:10,560 --> 00:01:13,360 Speaker 1: witness in the case. You know, he spent about eight 19 00:01:13,360 --> 00:01:16,640 Speaker 1: hours on the stand. It was highly entertaining and engaging, 20 00:01:17,000 --> 00:01:20,360 Speaker 1: especially at the beginning his own lawyer started and kind 21 00:01:20,360 --> 00:01:23,320 Speaker 1: of led him through his career history. So you got 22 00:01:23,319 --> 00:01:26,480 Speaker 1: a whole history of Tesla and Solar City and a 23 00:01:26,480 --> 00:01:28,520 Speaker 1: crash course. If you didn't know anything about it and 24 00:01:28,560 --> 00:01:30,680 Speaker 1: you just sat in from the public, you would have 25 00:01:30,760 --> 00:01:33,520 Speaker 1: learned a whole lot about Elon Musk and Tesla. Um. 26 00:01:33,560 --> 00:01:36,560 Speaker 1: It was quite entertaining. He definitely got some chuckles in 27 00:01:36,560 --> 00:01:39,280 Speaker 1: the courtroom. He had some supporters in the courtroom for sure, 28 00:01:39,600 --> 00:01:42,560 Speaker 1: and he said he thinks he's funny, So that definitely 29 00:01:42,560 --> 00:01:45,160 Speaker 1: brought a laugh out or two. So Chris tell us 30 00:01:45,200 --> 00:01:48,760 Speaker 1: about the lawsuit and the allegations of the plaintiffs, a 31 00:01:48,800 --> 00:01:52,800 Speaker 1: group of plaintiffs who were shareholders, and they alleged basically 32 00:01:52,840 --> 00:01:56,360 Speaker 1: the Musk kind of drove this deal. You know, he 33 00:01:56,480 --> 00:02:00,520 Speaker 1: controls both companies, and the allegations are that he basically 34 00:02:00,600 --> 00:02:03,560 Speaker 1: used this position and kind of push this acquisition through 35 00:02:03,880 --> 00:02:07,720 Speaker 1: without going through the proper corporate governance channels. How did 36 00:02:07,840 --> 00:02:12,280 Speaker 1: Musk do on cross examination? And what was the shareholders 37 00:02:12,480 --> 00:02:16,160 Speaker 1: lawyer Randy Baron trying to get him to admit? So 38 00:02:16,320 --> 00:02:18,760 Speaker 1: he was repeatedly trying to get Musk to admit that 39 00:02:18,840 --> 00:02:23,200 Speaker 1: he controlled test blood. Whatever he said goes that nobody 40 00:02:23,280 --> 00:02:25,320 Speaker 1: was going to oppose him, that the board was kind 41 00:02:25,360 --> 00:02:28,400 Speaker 1: of there to rubber stamp what he was doing. Um, 42 00:02:28,480 --> 00:02:32,280 Speaker 1: In normal acquisition procedures, the board is supposed to conduct 43 00:02:32,320 --> 00:02:36,000 Speaker 1: an independent investigation of whether the acquisition makes sense and 44 00:02:36,040 --> 00:02:39,040 Speaker 1: if the price makes sense, and Musk is supposed to 45 00:02:39,080 --> 00:02:42,360 Speaker 1: not really be involved. But Randy was trying to show 46 00:02:42,400 --> 00:02:45,519 Speaker 1: that he was quite involved, talking to bankers, talking to lawyers, 47 00:02:45,880 --> 00:02:49,400 Speaker 1: checking in daily about the progress of the merger. So 48 00:02:49,880 --> 00:02:52,560 Speaker 1: that's really where he was trying to get at Musk. 49 00:02:52,639 --> 00:02:54,840 Speaker 1: He was combative, but he was calmed most of the time. 50 00:02:55,120 --> 00:02:57,239 Speaker 1: He sparred with the lawyer quite a bit, and we 51 00:02:57,320 --> 00:02:59,960 Speaker 1: called him a bad human being. It was quite a matchup. 52 00:03:00,040 --> 00:03:03,079 Speaker 1: But he continually repeated what was kind of a mantras 53 00:03:03,160 --> 00:03:06,359 Speaker 1: about how he had a plan for Tesla that included 54 00:03:06,400 --> 00:03:10,400 Speaker 1: solar from the beginning, and this accusation made perfect sense 55 00:03:10,560 --> 00:03:12,800 Speaker 1: and just fit with what they were doing with building 56 00:03:12,840 --> 00:03:16,720 Speaker 1: a solar roof and a battery that could store solar power. 57 00:03:17,400 --> 00:03:19,800 Speaker 1: So you said that Musk kept cool, but he also 58 00:03:19,880 --> 00:03:24,600 Speaker 1: said that his questions were deceptive. Your questions are so deceptive, 59 00:03:24,639 --> 00:03:27,959 Speaker 1: it's silly. What was his attitude toward Barron? Was it 60 00:03:28,080 --> 00:03:31,320 Speaker 1: sort of dismissive. Yeah, that's exactly the right word to use. 61 00:03:31,440 --> 00:03:34,320 Speaker 1: He was dismissive. He said, this line of questioning was 62 00:03:34,639 --> 00:03:37,880 Speaker 1: like you said, you know, it's silly, deceptive. You know, 63 00:03:37,960 --> 00:03:40,480 Speaker 1: you're just trying to craft a narrative. He said, I 64 00:03:40,480 --> 00:03:43,040 Speaker 1: think you're trying to conjure the notion of a conspiracy. 65 00:03:43,120 --> 00:03:46,480 Speaker 1: At one point, there's some my rolls, um, there's definitely 66 00:03:46,520 --> 00:03:48,840 Speaker 1: some shaking of the head, but he was pretty much 67 00:03:48,840 --> 00:03:53,000 Speaker 1: a calm customer. The public perception is that Musku is 68 00:03:53,080 --> 00:03:56,480 Speaker 1: Tesla and that Tesla wouldn't survive without Musk. Did he 69 00:03:56,520 --> 00:03:59,880 Speaker 1: deny that. He said he controls of the company, and 70 00:04:00,040 --> 00:04:03,000 Speaker 1: that the rest of the company, you know, the other shareholders, 71 00:04:03,000 --> 00:04:05,600 Speaker 1: are free to invest and buy and sell their shares, 72 00:04:05,640 --> 00:04:08,560 Speaker 1: and that the directors are independent. He brushed off the 73 00:04:08,600 --> 00:04:11,120 Speaker 1: notion that he was solely in control of the company, 74 00:04:11,120 --> 00:04:13,680 Speaker 1: and he said he doesn't even really want to be CEO. 75 00:04:13,880 --> 00:04:16,240 Speaker 1: He just doesn't because he feels like Tesla would die 76 00:04:16,279 --> 00:04:19,440 Speaker 1: without him. He said that many times that he enjoys 77 00:04:19,720 --> 00:04:23,280 Speaker 1: designing things and doing engineering. It was interesting to hear 78 00:04:23,360 --> 00:04:27,159 Speaker 1: him say that so frankly, so, then who won this matchup? 79 00:04:27,240 --> 00:04:31,400 Speaker 1: On cross examination? There's no technical knockout here, I would 80 00:04:31,440 --> 00:04:34,680 Speaker 1: say there was definitely a lot of body blows landed Unmusk. 81 00:04:34,839 --> 00:04:37,520 Speaker 1: But like I said, he pretty much repeated his mantra 82 00:04:37,640 --> 00:04:41,400 Speaker 1: that from the beginning of Tesla's existence he had planned 83 00:04:41,400 --> 00:04:43,960 Speaker 1: for it to be a sustainable energy company, not just 84 00:04:44,000 --> 00:04:47,560 Speaker 1: an electric car company, and that the logical progression of 85 00:04:47,560 --> 00:04:49,880 Speaker 1: that would have been to acquire a solar company. He 86 00:04:49,960 --> 00:04:52,800 Speaker 1: pointed to his master plan for the company from two 87 00:04:52,880 --> 00:04:56,680 Speaker 1: thousand and six where he said that mentioned solar technology, 88 00:04:56,720 --> 00:04:59,320 Speaker 1: and he said that even though you know he had 89 00:04:59,360 --> 00:05:01,920 Speaker 1: family tie us to the company, it just made sense 90 00:05:01,960 --> 00:05:05,880 Speaker 1: as an acquisition. Baron was trying to show that, you know, 91 00:05:05,960 --> 00:05:08,600 Speaker 1: Solar City was going in declined and needed a bail out, 92 00:05:09,040 --> 00:05:12,240 Speaker 1: you know, showing how it's megal Watts had declined the 93 00:05:12,440 --> 00:05:15,680 Speaker 1: ones deployed over time. But must push back on that 94 00:05:15,800 --> 00:05:17,240 Speaker 1: and said, you know, part of that was due to 95 00:05:17,240 --> 00:05:20,240 Speaker 1: the pandemic, that they hadn't been able to secure permits 96 00:05:20,279 --> 00:05:23,560 Speaker 1: for solar panels due to the pandemic, and they've been 97 00:05:23,560 --> 00:05:26,240 Speaker 1: on the rise lately, you know, he was frank he 98 00:05:26,360 --> 00:05:29,400 Speaker 1: was funny, he was entertaining, and you know he showed 99 00:05:29,400 --> 00:05:32,520 Speaker 1: his disdain for lawyers for sure. So now the judge 100 00:05:32,640 --> 00:05:37,080 Speaker 1: asked Must a series of questions, what was he getting at? 101 00:05:37,360 --> 00:05:39,760 Speaker 1: So the judge seemed to want to get to the 102 00:05:39,800 --> 00:05:43,719 Speaker 1: heart of what. Like I said, Must kept repeating about 103 00:05:43,760 --> 00:05:47,119 Speaker 1: this being solar from the beginning. He wanted to know, well, 104 00:05:47,440 --> 00:05:49,240 Speaker 1: was this really a part of the plan. Was this 105 00:05:49,360 --> 00:05:51,800 Speaker 1: acquisition a part of the plan, or was that just 106 00:05:51,920 --> 00:05:54,680 Speaker 1: kind of a general idea. He wanted to know why 107 00:05:54,760 --> 00:05:57,880 Speaker 1: the power wall, which is the battery storage that they 108 00:05:57,920 --> 00:06:01,120 Speaker 1: have um needed to have a soul or capacity in 109 00:06:01,200 --> 00:06:05,120 Speaker 1: order to be a sustainable product. Thanks Chris, that's Bloomberg. 110 00:06:05,200 --> 00:06:08,880 Speaker 1: Legal reporter Crystal Mesh. Musk is the only defendant in 111 00:06:08,880 --> 00:06:11,640 Speaker 1: the lawsuit. The rest of the board settled last year, 112 00:06:11,920 --> 00:06:14,599 Speaker 1: So if he loses, Musk could be ordered to dig 113 00:06:14,600 --> 00:06:17,480 Speaker 1: into his own pocket to hand back the roughly two 114 00:06:17,560 --> 00:06:22,640 Speaker 1: billion dollars that Testlas shelled out for Solar City. Companies 115 00:06:22,640 --> 00:06:26,480 Speaker 1: in a variety of industries require workers to sign non competes. 116 00:06:26,760 --> 00:06:31,040 Speaker 1: President Joe Biden says that hurts workers and stifles competition. 117 00:06:31,480 --> 00:06:34,279 Speaker 1: Biden is calling on the FTC to ban or a 118 00:06:34,279 --> 00:06:38,160 Speaker 1: limit employee non competes as part of an executive order 119 00:06:38,200 --> 00:06:42,960 Speaker 1: issued on July nine aimed at improving competition within the economy. 120 00:06:43,240 --> 00:06:45,960 Speaker 1: Biden is calling on the FTC to ban or a 121 00:06:46,000 --> 00:06:49,960 Speaker 1: limit employee noncompetes as part of a brown executive order 122 00:06:50,000 --> 00:06:54,320 Speaker 1: issued on July nine aimed at improving competition within the economy. 123 00:06:54,880 --> 00:06:57,479 Speaker 1: Joining me is Evan Starr, a professor at the University 124 00:06:57,480 --> 00:07:01,960 Speaker 1: of Maryland, tell us about non competes. What's a noncompete 125 00:07:02,120 --> 00:07:04,760 Speaker 1: and what are the purpose? What's the purpose? Well? A 126 00:07:04,800 --> 00:07:08,920 Speaker 1: noncompete agreement is a clause that appears in individual employment 127 00:07:08,920 --> 00:07:13,560 Speaker 1: contracts that prohibits the worker from leaving and starting or 128 00:07:13,640 --> 00:07:17,800 Speaker 1: joining the compete firm, often within a specific time frame 129 00:07:18,360 --> 00:07:20,760 Speaker 1: one or two years or so, and within a typical 130 00:07:20,760 --> 00:07:23,720 Speaker 1: and geographic area which could be a few miles from 131 00:07:23,720 --> 00:07:26,000 Speaker 1: the place of work, where it could be even the 132 00:07:26,040 --> 00:07:28,000 Speaker 1: state of the u S or even the world. The 133 00:07:28,080 --> 00:07:31,040 Speaker 1: common russtionalph for noncompete agreement is that they are used 134 00:07:31,040 --> 00:07:35,000 Speaker 1: to protect trade secrets and confidential information that the firm 135 00:07:35,120 --> 00:07:39,160 Speaker 1: uses and that the worker could appropriate for themselves if 136 00:07:39,160 --> 00:07:41,600 Speaker 1: they were to go join a competitor and put their 137 00:07:41,600 --> 00:07:44,840 Speaker 1: firm into disadvantage. And so you know, just colloquially, if 138 00:07:44,880 --> 00:07:46,960 Speaker 1: I have a trade secret and I would like to 139 00:07:47,120 --> 00:07:48,600 Speaker 1: give it to you, I might be worried that you 140 00:07:48,600 --> 00:07:50,840 Speaker 1: would take it across the street and then use it 141 00:07:50,840 --> 00:07:53,600 Speaker 1: against me. So as a result, without a noncompete agreement, 142 00:07:53,600 --> 00:07:56,520 Speaker 1: I wouldn't have any incentives to invest in the creation 143 00:07:56,600 --> 00:07:58,320 Speaker 1: of that trade secret or share with you in the 144 00:07:58,360 --> 00:08:01,600 Speaker 1: first place. And so the non beat solved that problem, 145 00:08:01,640 --> 00:08:04,679 Speaker 1: allowing the firms to comfortably invest in the creation development 146 00:08:04,720 --> 00:08:08,520 Speaker 1: of those trade secrets. Non Competes are used even for 147 00:08:08,720 --> 00:08:13,360 Speaker 1: manual laborers, for low wage earners, noncompete agreements that we 148 00:08:13,400 --> 00:08:16,000 Speaker 1: found in every corner of the U S workforce, for 149 00:08:16,080 --> 00:08:19,200 Speaker 1: low wage workers, for interns, for volunteers, certainly as the 150 00:08:19,280 --> 00:08:22,440 Speaker 1: high levels of executives high tech workers. In one study 151 00:08:22,480 --> 00:08:25,520 Speaker 1: we found that among the national representative sample of workers, 152 00:08:25,800 --> 00:08:28,760 Speaker 1: we found that actually hourly workers are the modal non 153 00:08:28,800 --> 00:08:32,240 Speaker 1: compete signers, not even salaried workers. And that's because hourly 154 00:08:32,280 --> 00:08:34,839 Speaker 1: workers make up about two thirds of the workforce, and 155 00:08:34,880 --> 00:08:37,040 Speaker 1: even though they signed noncompete at lower rates, there's so 156 00:08:37,120 --> 00:08:39,000 Speaker 1: many of them that they account for the majority of 157 00:08:39,040 --> 00:08:41,679 Speaker 1: non compete signers. This is a broad order. What is 158 00:08:41,800 --> 00:08:45,880 Speaker 1: Biden asking the FTC to do well. I think President 159 00:08:45,920 --> 00:08:50,719 Speaker 1: Biden is concerned and he has been since seen when 160 00:08:50,760 --> 00:08:53,199 Speaker 1: it came to light that non compete agreements were being 161 00:08:53,360 --> 00:08:55,480 Speaker 1: used in jobs where there seemed to be a little 162 00:08:55,520 --> 00:08:58,240 Speaker 1: merit for them, and that includes low wage workers, that 163 00:08:58,400 --> 00:09:02,240 Speaker 1: includes workers who are even volunteers. So there was a 164 00:09:02,280 --> 00:09:06,040 Speaker 1: recognition at that time that these have spread quite broadly, 165 00:09:06,080 --> 00:09:09,319 Speaker 1: and an empirical research since that time has bolstered some 166 00:09:09,400 --> 00:09:12,400 Speaker 1: of these concerns. We've seen, for example, that of firms 167 00:09:12,559 --> 00:09:16,520 Speaker 1: used noncompete up and down the organization without any discretion 168 00:09:16,600 --> 00:09:19,080 Speaker 1: for the type of job or the access to information 169 00:09:19,240 --> 00:09:21,520 Speaker 1: that a particular worker has. And in that situation, you're 170 00:09:21,559 --> 00:09:24,520 Speaker 1: gonna have janitors signing noncompetes, you're gonna have secretaries, you're 171 00:09:24,520 --> 00:09:26,880 Speaker 1: going to have minimum wage workers. At the same time, 172 00:09:26,920 --> 00:09:30,040 Speaker 1: we've had several studies that have shown that when states 173 00:09:30,240 --> 00:09:34,080 Speaker 1: limit or banned noncompete agreements that workers benefit. For example, 174 00:09:34,160 --> 00:09:38,839 Speaker 1: Hawaii ban noncompete agreements for high tech workers, and the 175 00:09:38,880 --> 00:09:42,080 Speaker 1: study of that band found that after noncompetes for BAND 176 00:09:42,120 --> 00:09:45,199 Speaker 1: for tech workers, tech workers in Hawaii had higher wages 177 00:09:45,440 --> 00:09:48,079 Speaker 1: and they increased their job mobility, but about eleven percent. 178 00:09:48,240 --> 00:09:50,040 Speaker 1: A similar study looks at the band on low wage 179 00:09:50,080 --> 00:09:53,360 Speaker 1: workers in Oregon in two thousand eight and found similar results, 180 00:09:53,400 --> 00:09:55,679 Speaker 1: but after Oregon ban non compete agreements, that jobs to 181 00:09:55,720 --> 00:09:59,280 Speaker 1: job mobility rose about sevent and that wages rose by 182 00:09:59,400 --> 00:10:01,360 Speaker 1: f to f five sent after six years. I think 183 00:10:01,400 --> 00:10:04,200 Speaker 1: there's another important point to which is that noncompete agreements 184 00:10:04,240 --> 00:10:06,760 Speaker 1: are not just restraints on trade in the labor market. 185 00:10:06,920 --> 00:10:09,000 Speaker 1: They don't just prohibit workers from leaving firm A and 186 00:10:09,080 --> 00:10:12,439 Speaker 1: joining firm B. They also prohibit workers from starting new firms. 187 00:10:12,559 --> 00:10:15,679 Speaker 1: And so if a noncompete agreement is going to reduce entrepreneurship, 188 00:10:15,840 --> 00:10:19,160 Speaker 1: then you've also got concerned the noncompetes could increase concentration, 189 00:10:19,480 --> 00:10:22,520 Speaker 1: that they could increase prices consumers pay, and that they 190 00:10:22,559 --> 00:10:25,560 Speaker 1: could reduce innovation because new firms are often the way 191 00:10:25,679 --> 00:10:29,400 Speaker 1: that innovation gets spurred. Has anything like this, any order 192 00:10:29,520 --> 00:10:32,959 Speaker 1: like this been done before on the federal level. This 193 00:10:33,120 --> 00:10:36,400 Speaker 1: is the first federal action on noncompete agreements where it 194 00:10:36,440 --> 00:10:38,600 Speaker 1: seems like there will be significant progress. There has been 195 00:10:38,600 --> 00:10:41,559 Speaker 1: a bill since about and in recent years in the 196 00:10:41,920 --> 00:10:44,800 Speaker 1: Congress that has thought to ban noncompetes. First for low 197 00:10:44,840 --> 00:10:46,920 Speaker 1: wage workers and now for most workers. This is a 198 00:10:46,960 --> 00:10:50,800 Speaker 1: bill co sponsored by Chris Murphy and Todd Young, which 199 00:10:50,880 --> 00:10:53,959 Speaker 1: is a bipartisan bill to ban most noncompete agreements. That's 200 00:10:54,000 --> 00:10:56,240 Speaker 1: been the first activity at the federal level, but that 201 00:10:56,360 --> 00:10:58,400 Speaker 1: bill has not moved anywhere, and so this will be 202 00:10:58,440 --> 00:11:01,400 Speaker 1: I think the first broad proh directed from a president 203 00:11:01,520 --> 00:11:05,080 Speaker 1: that we've ever seen. So it's the first. It seems 204 00:11:05,160 --> 00:11:08,000 Speaker 1: likely then that they're going to be legal challenges to it. 205 00:11:08,600 --> 00:11:10,800 Speaker 1: There could be, I think depends on how broad of 206 00:11:10,920 --> 00:11:14,439 Speaker 1: a scope the FTC wishes to pursue. I can imagine 207 00:11:14,480 --> 00:11:18,600 Speaker 1: that there are several uncontroversial elements that the FTC could incorporate. 208 00:11:18,640 --> 00:11:21,320 Speaker 1: For example, a ban on noncompete agreements for low wage 209 00:11:21,360 --> 00:11:24,920 Speaker 1: workers is a largely uncontroversial opinion. Exactly what a low 210 00:11:24,960 --> 00:11:28,000 Speaker 1: wage worker is, however, is up to debate. In Washington State, 211 00:11:28,080 --> 00:11:31,120 Speaker 1: for example, they passed a ban for workers earning less 212 00:11:31,120 --> 00:11:33,200 Speaker 1: than a hundred thousand dollars, and in other states they've 213 00:11:33,240 --> 00:11:36,000 Speaker 1: limited it to workers making thirteen dollars an hour fifteen 214 00:11:36,000 --> 00:11:38,839 Speaker 1: dollars an hour, and so there's quite a wide range 215 00:11:38,920 --> 00:11:41,480 Speaker 1: of what low wage workers are considered. I think another 216 00:11:41,640 --> 00:11:45,000 Speaker 1: uncontroversial piece is that oftentimes workers can agree and on 217 00:11:45,080 --> 00:11:47,439 Speaker 1: compete agreements on the first day of the job, sometimes 218 00:11:47,520 --> 00:11:50,480 Speaker 1: clicking through their employment contract on the computer. And in 219 00:11:50,559 --> 00:11:53,360 Speaker 1: that situation, a worker may have not have known before 220 00:11:53,400 --> 00:11:54,880 Speaker 1: they joined the company that they were going to be 221 00:11:54,920 --> 00:11:56,959 Speaker 1: asked to sign a non compete agreement, and on that 222 00:11:57,040 --> 00:11:59,240 Speaker 1: first day they don't have a chance to negotiate or 223 00:11:59,360 --> 00:12:02,480 Speaker 1: reconsider terms. Maybe they've already moved their family, and so 224 00:12:02,600 --> 00:12:05,160 Speaker 1: most workers just click and sign that agreement and stuff 225 00:12:05,160 --> 00:12:07,800 Speaker 1: of the consequences down the road. And so the FTC 226 00:12:08,040 --> 00:12:12,400 Speaker 1: in many states, I imagine, will consider requiring early notice 227 00:12:12,559 --> 00:12:15,520 Speaker 1: of noncompete agreement in the executive order. Is there any 228 00:12:15,600 --> 00:12:20,520 Speaker 1: guidance about what the FTC should be addressing. I think 229 00:12:20,559 --> 00:12:23,560 Speaker 1: the guidance to the FTC is pretty vague and broad. 230 00:12:23,640 --> 00:12:26,079 Speaker 1: At this point, they FTC will get to determine the 231 00:12:26,160 --> 00:12:28,079 Speaker 1: scope of the rule that they want to create. I 232 00:12:28,160 --> 00:12:30,679 Speaker 1: imagine that they come up with a policy like ban 233 00:12:30,760 --> 00:12:33,160 Speaker 1: noncompete agreements for most workers. Are all workers that that 234 00:12:33,200 --> 00:12:36,560 Speaker 1: would invite legal challenges from states. Noncompetes have of course 235 00:12:36,600 --> 00:12:39,520 Speaker 1: been regulated by states for over two years in the US. 236 00:12:39,640 --> 00:12:43,160 Speaker 1: There's no real reason for that the Sherman Antitrust Act 237 00:12:43,240 --> 00:12:47,720 Speaker 1: governs contracts and restraintive trade, and noncompete agreements are restraints 238 00:12:47,720 --> 00:12:50,640 Speaker 1: of trade. By definition, they're preventing workers from working for 239 00:12:50,679 --> 00:12:53,840 Speaker 1: another employer. And so the federal government could have regulated 240 00:12:53,880 --> 00:12:56,679 Speaker 1: noncompete agreements under the antitrust laws that we currently have, 241 00:12:56,960 --> 00:12:58,959 Speaker 1: and for whatever reason, they have not chosen to do so, 242 00:12:59,200 --> 00:13:01,400 Speaker 1: and so I think there is some ground for them 243 00:13:01,480 --> 00:13:04,640 Speaker 1: to regulate noncompete agreements, though imagine because of the history 244 00:13:04,920 --> 00:13:07,840 Speaker 1: that some states may be unhappy and may challenge those laws. 245 00:13:08,080 --> 00:13:10,880 Speaker 1: As you say, it's an area that's traditionally been the 246 00:13:10,960 --> 00:13:15,559 Speaker 1: domain of states. What kinds of restrictions have states had. Yeah, so, 247 00:13:15,920 --> 00:13:18,319 Speaker 1: historically there have been three states that do not enforce 248 00:13:18,360 --> 00:13:21,400 Speaker 1: noncompete agreements, and those policies were adopted a long time ago. 249 00:13:21,679 --> 00:13:25,120 Speaker 1: For example, California's policy on noncompetes was that they would 250 00:13:25,120 --> 00:13:28,920 Speaker 1: be unenforceable an unlawful, and that policy was adopted in 251 00:13:29,000 --> 00:13:32,160 Speaker 1: eighteen seventy two. If you fast forward to today, what 252 00:13:32,280 --> 00:13:35,480 Speaker 1: we see is that some states like Florida, will enforce 253 00:13:35,559 --> 00:13:38,120 Speaker 1: a noncompete agreement even if the worker was fired from 254 00:13:38,160 --> 00:13:41,679 Speaker 1: the job, and when the court is considering whether enforcednocompete, 255 00:13:41,679 --> 00:13:44,000 Speaker 1: they won't even consider the hardship done to the worker, 256 00:13:44,240 --> 00:13:47,000 Speaker 1: and that's directly in their statute. In contrast, you have 257 00:13:47,200 --> 00:13:51,319 Speaker 1: areas like DC who passed probably the most expansive law recently, 258 00:13:51,960 --> 00:13:55,040 Speaker 1: which was to ban noncompetes for almost all workers and 259 00:13:55,120 --> 00:13:58,640 Speaker 1: to institute penalties for firms that are caught using noncompetes 260 00:13:58,679 --> 00:14:01,240 Speaker 1: that are now deemed illegal. And this is really important 261 00:14:01,280 --> 00:14:02,960 Speaker 1: because if you look at some of the recent research, 262 00:14:03,400 --> 00:14:06,280 Speaker 1: what we find is that firms in California are still 263 00:14:06,400 --> 00:14:11,760 Speaker 1: using noncompetes at similar rates to other states. California's policy 264 00:14:12,080 --> 00:14:15,199 Speaker 1: on noncreegrams has has not deterred firms from using them 265 00:14:15,720 --> 00:14:20,560 Speaker 1: with their workers. And so one of the goals of 266 00:14:20,680 --> 00:14:23,040 Speaker 1: a of these bills is to actually reduce the use 267 00:14:23,120 --> 00:14:25,640 Speaker 1: of noncompete agreements and get them out of workers contracts. 268 00:14:25,840 --> 00:14:27,800 Speaker 1: And that's because when a workers signs an agreement like this, 269 00:14:27,960 --> 00:14:30,560 Speaker 1: they tend to believe that when they put their signature 270 00:14:30,680 --> 00:14:33,480 Speaker 1: on a contract that the court would uphold that contract, 271 00:14:33,680 --> 00:14:35,920 Speaker 1: and as a result, workers tend to obey these noncompete 272 00:14:35,920 --> 00:14:38,600 Speaker 1: agreements and they're susceptible to threats by the firm when 273 00:14:38,640 --> 00:14:41,120 Speaker 1: the firm reminds them of their obligations that they've agreed to. 274 00:14:41,720 --> 00:14:44,160 Speaker 1: And so even in California and in places that would 275 00:14:44,200 --> 00:14:47,880 Speaker 1: not sanction non compete agreement, the noncompets can still chill 276 00:14:48,120 --> 00:14:50,640 Speaker 1: workers and in some cases that children just similar degrees. 277 00:14:50,680 --> 00:14:54,280 Speaker 1: In states that would actually enforce those do employers do. 278 00:14:54,520 --> 00:15:00,920 Speaker 1: Companies often go after manual laborers, low wage earners incord 279 00:15:01,040 --> 00:15:03,840 Speaker 1: over noncompete, but certainly they do. There was a case 280 00:15:03,880 --> 00:15:07,440 Speaker 1: a few years ago about a janitorial worker who was 281 00:15:07,520 --> 00:15:10,360 Speaker 1: making eighteen dollars an hour who had a noncompete that 282 00:15:10,520 --> 00:15:13,200 Speaker 1: was thought to be enforced against her, and the only 283 00:15:13,240 --> 00:15:15,160 Speaker 1: reason that case was dropped was because of the public 284 00:15:15,240 --> 00:15:18,440 Speaker 1: outcry when that occurred, when it became public. Over time, 285 00:15:18,760 --> 00:15:20,720 Speaker 1: what we've seen is that we've learned is that most 286 00:15:20,800 --> 00:15:24,040 Speaker 1: firms don't enforce Theason Court. There's only about a thousand 287 00:15:24,160 --> 00:15:26,800 Speaker 1: or so not to be decisions every year. But what 288 00:15:27,240 --> 00:15:30,120 Speaker 1: as of happening is that firms have policies in place 289 00:15:30,360 --> 00:15:33,760 Speaker 1: that can basically remind workers of our obligations, send them 290 00:15:33,800 --> 00:15:37,360 Speaker 1: a threatening letters, and that's nine of the time or more. 291 00:15:37,680 --> 00:15:41,200 Speaker 1: That's how noncompetes are effectively enforced outside of the courtroom. 292 00:15:42,120 --> 00:15:45,120 Speaker 1: What do employees have to prove incord in order to 293 00:15:45,360 --> 00:15:49,680 Speaker 1: enforce a noncompete clause when the firms tous a worker 294 00:15:49,760 --> 00:15:51,560 Speaker 1: for a value in the noncompete, First the worker has 295 00:15:51,640 --> 00:15:54,560 Speaker 1: to go and join a competitor, right, that's the key violation. 296 00:15:55,240 --> 00:15:57,640 Speaker 1: But once that's been established, then it has to be 297 00:15:57,720 --> 00:16:00,120 Speaker 1: shown that the firm has some legitimate business in just 298 00:16:00,400 --> 00:16:04,000 Speaker 1: that the noncompete is actually protecting. That includes trade secrets, 299 00:16:04,360 --> 00:16:07,520 Speaker 1: client lists typically. And then the firm also has to 300 00:16:07,600 --> 00:16:11,320 Speaker 1: argue that the non compete is a reasonable restriction on trade, 301 00:16:11,640 --> 00:16:14,320 Speaker 1: that the geographic and time limits are reasonable, and that 302 00:16:14,400 --> 00:16:17,280 Speaker 1: they're trying to protect these legitimate visinitors through other means 303 00:16:17,320 --> 00:16:20,480 Speaker 1: as well. So that's the kind of standard reasonableness test, 304 00:16:20,680 --> 00:16:22,160 Speaker 1: and then the court, the court is going to weigh, 305 00:16:22,320 --> 00:16:25,200 Speaker 1: you know, the firms need to protect these business interests 306 00:16:25,240 --> 00:16:27,360 Speaker 1: against the harm done to the worker and the harm 307 00:16:27,440 --> 00:16:29,600 Speaker 1: done to the public interest. So it sounds like it's 308 00:16:29,600 --> 00:16:34,200 Speaker 1: a tough standard to meet to enforce a noncompete. Again, 309 00:16:34,200 --> 00:16:36,920 Speaker 1: it depends on where you are. In Florida. As I said, 310 00:16:37,040 --> 00:16:39,080 Speaker 1: you know that the courts are instructed they're not even 311 00:16:39,160 --> 00:16:42,280 Speaker 1: to consider hardship done to the worker. I think that again, 312 00:16:42,440 --> 00:16:45,760 Speaker 1: in most cases, these operate mostly outside of the courtroom, 313 00:16:46,280 --> 00:16:48,160 Speaker 1: but in the case where it does go to court, 314 00:16:48,520 --> 00:16:51,960 Speaker 1: you're often seen high level executives and such who clearly 315 00:16:52,000 --> 00:16:54,600 Speaker 1: have access to value the whole information and my senses. 316 00:16:54,680 --> 00:16:57,680 Speaker 1: In those cases, you have negotiated contracts, and courts are 317 00:16:57,720 --> 00:17:00,440 Speaker 1: much more willing to enforce those contracts generally. So, as 318 00:17:00,480 --> 00:17:03,720 Speaker 1: someone who studied this, do you think that this is 319 00:17:03,760 --> 00:17:06,960 Speaker 1: a good idea what Biden is proposing for the FTC. 320 00:17:07,600 --> 00:17:11,600 Speaker 1: I think that there's important value in federal non compete regulation, 321 00:17:11,920 --> 00:17:14,480 Speaker 1: and the policies that we've seen being adopted to the 322 00:17:14,480 --> 00:17:17,119 Speaker 1: state level has provided lots of great natural experiments that 323 00:17:17,200 --> 00:17:19,879 Speaker 1: we've learned from. We've learned about some of the value 324 00:17:20,000 --> 00:17:23,240 Speaker 1: that comes from banning or loosening restrictions on noncompete agreements 325 00:17:23,280 --> 00:17:25,720 Speaker 1: from those the state policy changes. But when you think 326 00:17:25,760 --> 00:17:28,360 Speaker 1: about what's happening to the state level, we're developing into 327 00:17:28,359 --> 00:17:31,520 Speaker 1: a situation where we now have so many different state 328 00:17:31,640 --> 00:17:34,560 Speaker 1: policies that it can be increasingly difficult for firms to 329 00:17:34,680 --> 00:17:38,520 Speaker 1: navigate each state's legal landscape, and increasingly difficult for workers 330 00:17:38,560 --> 00:17:40,680 Speaker 1: who are going to traverse across state lines to know 331 00:17:40,800 --> 00:17:43,439 Speaker 1: which state's non coun bet lapped by. So imagine your 332 00:17:43,560 --> 00:17:46,040 Speaker 1: firm that has offices in many states and you'd like 333 00:17:46,080 --> 00:17:48,880 Speaker 1: to use noncompete agreements. If every state has their own policies, 334 00:17:48,920 --> 00:17:52,000 Speaker 1: that can be really difficult to write enforceable noncompete agreements 335 00:17:52,119 --> 00:17:54,159 Speaker 1: for all of those workers. Similarly, if you have a 336 00:17:54,200 --> 00:17:56,439 Speaker 1: worker who's working and let's say Florida, but they want 337 00:17:56,480 --> 00:17:59,240 Speaker 1: to move to California, which state laws should apply in 338 00:17:59,359 --> 00:18:02,280 Speaker 1: that instant when their policies are so disparate. And so 339 00:18:02,359 --> 00:18:05,240 Speaker 1: I think there is value from the federal government in 340 00:18:05,560 --> 00:18:09,480 Speaker 1: establishing a common standard that can really reduce uncertainty for 341 00:18:09,560 --> 00:18:12,480 Speaker 1: both workers and firm. And I think it's important to 342 00:18:12,560 --> 00:18:15,360 Speaker 1: highlight that we're not just talking about workers who might 343 00:18:15,400 --> 00:18:18,919 Speaker 1: benefit in terms of increased mobility, but firms also benefit 344 00:18:19,000 --> 00:18:21,159 Speaker 1: as well, because a worker who is now able to 345 00:18:21,200 --> 00:18:23,280 Speaker 1: take a job means the firm was able to hire. 346 00:18:23,560 --> 00:18:25,080 Speaker 1: And this is I think one of the really important 347 00:18:25,119 --> 00:18:27,000 Speaker 1: points to mention, which is that this is not a 348 00:18:27,119 --> 00:18:30,440 Speaker 1: pro worker anti firm issue, because firms are on both 349 00:18:30,520 --> 00:18:33,159 Speaker 1: sides of the coin here. Of course, firms wouldn't want 350 00:18:33,200 --> 00:18:35,880 Speaker 1: to lose a worker to their competitor, but they would 351 00:18:35,920 --> 00:18:38,680 Speaker 1: like to be able to hire experience, knowledgeable workers from 352 00:18:38,680 --> 00:18:41,200 Speaker 1: their competitors, and so in court sometimes you see this 353 00:18:41,359 --> 00:18:44,320 Speaker 1: where a firm will be arguing that a non compete 354 00:18:44,440 --> 00:18:47,320 Speaker 1: for their worker should be enforced, but when they're trying 355 00:18:47,359 --> 00:18:49,800 Speaker 1: to hire, even if it's the exact same noncompete for 356 00:18:49,880 --> 00:18:52,000 Speaker 1: work in a very similar position, they'll switch side and 357 00:18:52,119 --> 00:18:53,920 Speaker 1: argue that it should not be enforced because they would 358 00:18:53,960 --> 00:18:56,080 Speaker 1: like to hire. And so it's important to realize that 359 00:18:56,359 --> 00:18:58,640 Speaker 1: this is not a pro worker or anti firm issue. 360 00:18:59,080 --> 00:19:02,479 Speaker 1: This is a work and firm issue where when workers 361 00:19:02,520 --> 00:19:05,080 Speaker 1: can stort to their best jobs, then firms can get 362 00:19:05,080 --> 00:19:09,000 Speaker 1: the best workers. It sounds also like a campaign to 363 00:19:09,160 --> 00:19:12,480 Speaker 1: inform might be helpful, because a lot of workers don't 364 00:19:12,560 --> 00:19:16,879 Speaker 1: realize what they're signing and don't realize once they leave 365 00:19:17,240 --> 00:19:19,919 Speaker 1: what the firm can or can't do. I think an 366 00:19:19,960 --> 00:19:23,400 Speaker 1: information campaign can be helpful, especially when the default presumption 367 00:19:23,560 --> 00:19:27,120 Speaker 1: is that contracts you sign are enforceable. I think education 368 00:19:27,240 --> 00:19:30,400 Speaker 1: can go always, but I think the more important point 369 00:19:30,560 --> 00:19:34,119 Speaker 1: is to say that is to provide incentives for firms 370 00:19:34,320 --> 00:19:36,679 Speaker 1: to not use noncompete agreements in the first place. If 371 00:19:36,720 --> 00:19:39,439 Speaker 1: the goal of the policy is to prevent firms from 372 00:19:39,480 --> 00:19:41,280 Speaker 1: using noncompete and there needs to be some sort of 373 00:19:41,400 --> 00:19:44,680 Speaker 1: disincentive for firms to use them. And I just mentioned 374 00:19:44,720 --> 00:19:46,760 Speaker 1: a few that are that are common here. One is 375 00:19:47,080 --> 00:19:50,359 Speaker 1: direct penalties that if a firm is caught using noncompettes 376 00:19:50,400 --> 00:19:52,280 Speaker 1: that are now deemed illegal, that they have to pay 377 00:19:52,280 --> 00:19:56,520 Speaker 1: a fine that workers can recover attorney's fees um. There 378 00:19:56,680 --> 00:20:00,880 Speaker 1: is also what's known as U garden leaves, where firms 379 00:20:00,960 --> 00:20:04,200 Speaker 1: will be required to pay workers during the the prohibited 380 00:20:04,280 --> 00:20:07,840 Speaker 1: period um. And finally, I think one really interesting effort 381 00:20:07,920 --> 00:20:10,760 Speaker 1: is that of California. We're not commnce again. I've been 382 00:20:10,840 --> 00:20:15,000 Speaker 1: unforceable since eighteen seventy two. There's been a question put 383 00:20:15,080 --> 00:20:17,639 Speaker 1: to the California State Bar, which is whether it is 384 00:20:17,720 --> 00:20:22,359 Speaker 1: unethical for lawyers to write terms that they know or 385 00:20:22,440 --> 00:20:26,800 Speaker 1: should know are illegal and unlawful under California state law. 386 00:20:27,720 --> 00:20:31,640 Speaker 1: And under this approach, it's possible that lawyers could potentially 387 00:20:31,680 --> 00:20:37,280 Speaker 1: be sanctioned for for writing unenforceable terms. What kind of 388 00:20:37,440 --> 00:20:42,000 Speaker 1: provision do you think the FTC should try to put forward, 389 00:20:42,320 --> 00:20:46,199 Speaker 1: an all inclusive one or something that is not going 390 00:20:46,280 --> 00:20:51,040 Speaker 1: to be objectable to most companies or states well, coming 391 00:20:51,119 --> 00:20:53,040 Speaker 1: from the angle of the research and what the research 392 00:20:53,080 --> 00:20:55,919 Speaker 1: has shown. Again, I think the big question is going 393 00:20:55,960 --> 00:20:58,359 Speaker 1: to be how broad do you make a ban on 394 00:20:58,480 --> 00:21:03,359 Speaker 1: non compute agreements. Um, the if you go for a 395 00:21:03,400 --> 00:21:05,520 Speaker 1: really low wage, it's going to be large that controversial. 396 00:21:05,520 --> 00:21:08,360 Speaker 1: If you start moving it up towards even high tech 397 00:21:08,440 --> 00:21:10,960 Speaker 1: workers executives, then I think there's going to be more 398 00:21:11,040 --> 00:21:13,320 Speaker 1: pushed back. And so what I want to highlight is 399 00:21:13,359 --> 00:21:16,040 Speaker 1: that on the research front, you know, what we know 400 00:21:16,240 --> 00:21:19,040 Speaker 1: is that high tech workers can be negatively impacted by 401 00:21:19,080 --> 00:21:22,560 Speaker 1: noncompete agreements, just like low wage workers can. So I 402 00:21:22,640 --> 00:21:26,320 Speaker 1: think there is scope for for the band to cover 403 00:21:26,440 --> 00:21:28,600 Speaker 1: quite a wide swath of workers. In fact, there's a 404 00:21:28,640 --> 00:21:34,240 Speaker 1: recent paper which argues that executives, even executives, the optimal ban, 405 00:21:34,400 --> 00:21:36,640 Speaker 1: the optimal policy, is close to a ont beet band, 406 00:21:37,680 --> 00:21:40,440 Speaker 1: and that's because again it may be the case that 407 00:21:40,520 --> 00:21:44,240 Speaker 1: firms have a little bit less protection because they won't 408 00:21:44,240 --> 00:21:46,760 Speaker 1: be able to use noncompete, but it's going to allow 409 00:21:46,960 --> 00:21:51,760 Speaker 1: workers to sort to their most productive job. And I think, 410 00:21:52,240 --> 00:21:54,280 Speaker 1: so there's that paper that is stuff, it's done. I 411 00:21:54,280 --> 00:21:56,280 Speaker 1: think that there's one question which is outstanding, but it's 412 00:21:56,280 --> 00:22:00,480 Speaker 1: really important it's that firms have other tools to use 413 00:22:00,720 --> 00:22:04,080 Speaker 1: which are more targeted to the to the legitimate interests 414 00:22:04,080 --> 00:22:06,840 Speaker 1: that they're trying to protect. For example, if you're trying 415 00:22:06,840 --> 00:22:11,040 Speaker 1: to protect information, you can use the nondisclosure agreements. You 416 00:22:11,119 --> 00:22:13,639 Speaker 1: can use trade secret laws. If you're trying to protect 417 00:22:13,680 --> 00:22:15,959 Speaker 1: clients that you have invested in developing, you can use 418 00:22:16,040 --> 00:22:19,560 Speaker 1: an agreement not to solicit those clients. Then you can 419 00:22:20,200 --> 00:22:24,399 Speaker 1: use a trained repayment agreement where a worker agrees to 420 00:22:24,600 --> 00:22:28,960 Speaker 1: repay a proportion of the initial outlay and their training 421 00:22:29,000 --> 00:22:31,840 Speaker 1: expenditures if they leave too early. The non compete is 422 00:22:31,880 --> 00:22:35,560 Speaker 1: a very broad tool. It offers the from a lot 423 00:22:35,640 --> 00:22:39,040 Speaker 1: of protection, but it may not be protection that the 424 00:22:39,080 --> 00:22:41,320 Speaker 1: firm really needs once you account for all those other 425 00:22:41,400 --> 00:22:44,000 Speaker 1: tools that the firm are beh Thanks for being on 426 00:22:44,040 --> 00:22:47,480 Speaker 1: the Bloomberg Law Show. That's Evans Star of the University 427 00:22:47,520 --> 00:22:49,720 Speaker 1: of Maryland. And that's it for the edition of the 428 00:22:49,720 --> 00:22:53,439 Speaker 1: Bloomberg Law Show. I'm June Grosso. 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