Hannah Garden-Monheit Letter to South Carolina Legislature Regarding SB 46

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Office of Policy Planning
January 14, 2025
VIA ELECTRONIC MAIL
The Honorable Thomas Davis
Senator
South Carolina Senate
Re: S.B. 46
Dear Senator Davis:
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 South Carolina legislature is considering S.B. 46 (“the Bill”) that,
among other things, would prohibit noncompete and certain other restrictive covenants
between physicians and employers, except in connection with most purchases and sales of
an independent physician practice. On April 23, 2024, the Commission approved a final
rule under the FTC Act banning noncompete clauses. 1
0F 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
1F
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
2F 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
3F
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
4F 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 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.
4 FTC, Noncompete Rule, https://www.ftc.gov/legal-library/browse/rules/noncompete-rule.
5 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. 6
5F Many of
the comments were from workers, businesses, and others in South Carolina—including
many health care practitioners. You can find such comments on the FTC’s public docket at
Regulations.gov. 7
6F
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
7F 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
8F Another analysis of the
same data found that 53% of workers covered by noncompetes are hourly workers. 10	
9F
Noncompetes are pervasive in health care. One study found that 45% of physicians worked
under a noncompete. 11	
10F A study of noncompetes in physician markets found that such
clauses lead to greater concentration and higher prices for consumers. 12	
11F The Commission
specifically found that noncompetes increase healthcare costs, 13	
1 2F and that the rule would
reduce health care costs by $74-$194 billion over the next decade in reduced spending on
physician services. 14	
1 3F
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. 15	
14F
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. 16	
15 F
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. 17	
1 6F The Commission estimates that its rule would
increase workers’ earnings by $400-$488 billion over the next decade, and an average
6 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. (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)).
12 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. A PPLIED E CON. 278 (2021)).
13 89 Fed. Reg. at 38447.
14 Id. at 38470, 38478.
15 Id. at 38374-79.
16 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).
17 See id. at 38382-87.
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worker will earn $524 more per year. 18	
1 7F
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. 19	
1 8F The Commission estimates that its rule would increase
new business formation by 2.7%, creating over 8,500 new businesses each year. 20	
19 F
Innovation would also increase, leading to about 17,000-29,000 new patents each year on
average. 21	
20F Through increased competition and innovation, consumers would have access to
better products and lower prices. 22	
2 1F
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. 23	
22F The Commission found that employers can use trade
secret law and reasonable non-disclosure agreements to protect legitimate intellectual
property interests. 24	
23 F Roughly 95% of workers with noncompetes are already subject to non-
disclosure agreements. 25	
24F The Commission also found that employers can protect their
investments in worker human capital, including training, by entering into fixed duration
employment contracts. 26	
25 F They can also compete on the merits to retain workers by offering
higher wages and better jobs. 27	
26 F
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. 28	
2 7F 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.
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. 29	
28 F
Thus, state laws can fill gaps with respect to noncompetes that are beyond the FTC’s
jurisdiction. 30	
29F
Moreover, states’ noncompete laws, unlike the FTC Act, may provide for a private right of
action and/or monetary penalties. 31	
3 0F State penalties can be substantial and may be particularly
18 Id. at 38469-70, 38474, 38505-06 (App., Table A1).
19 See id. at 38388-402.
20 See id. at 38433, 38485; FTC, Noncompete Rule, https://www.ftc.gov/legal-
library/browse/rules/noncompete-rule.
21 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.
22 Id. at 38380, 38408.
23 See id. at 38421-34.
24 Id. at 38424-26.
25 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).
26 89 Fed. Reg. at 38426.
27 Id.
28 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).
29 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.
30 89 Fed. Reg. at 38453-55; see also id. at 38449.
31 Id. at 38452-54.
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important as a deterrent, as can parallel enforcement of state laws. 32	
31F
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. 33	
32F 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. 34	
33 F
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 S.B. 46. 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 38454.
33 Id. at 38452-54.
34 Id. at 38453-55.
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