WHEN: Today, Thursday, April 25, 2024
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC interview with FTC Chair Lina Khan on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Thursday, April 25. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/04/25/ftc-chair-lina-khan-eliminating-noncompetes-will-boost-innovation-and-new-business-creation.html.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: We’re talking about noncompetes this morning. The U.S. Chamber of Commerce and some other business groups now suing the Federal Trade Commission over its decision to ban noncompete clauses for U.S. workers. The groups say the FTC doesn’t have authority to implement the rule and that the rule itself is too broad. Joining us right now to respond to that and help us all understand how the rule is supposed to work, FTC Chair Lina Khan is here. Good morning to you.
LINA KHAN: Good morning.
SORKIN: So, let’s talk first, though, about how this rule is supposed to work. We’ve talked about it on the air yesterday when it was announced. I actually think there’s a bit of a misunderstanding about what’s happened. Contracts that are already in place for folks that are being paid over $151,000 and have a policymaking role can stay in place for as long as the contract exists. But new contracts for even people at the very top of these organizations can’t be created, correct?
KHAN: That’s right. So, once the rule goes into effect, which as of right now will probably be around the end of August, beginning of September, any new contracts will not be able to include noncompetes for workers and employees.
SORKIN: So we now have the Chamber of Commerce and a whole number of businesses suing, saying that this rule is effectively illegal. That it — that it’s an overreach effectively of the government, and that it’s going to create all sorts of problems for business. You’ve heard the comments that have come in from business not just in the past day but over the past several months as you’ve been receiving them. What do you make of that?
KHAN: So, we did get a lot of comments. We got 26,000 public comments, 25,000 of them were in support of the ban. And this was across the country, across sectors, across income levels because at the end of the day, what noncompetes do is they keep talent locked up. They prevent a more efficient matching between employer and employee. And so, getting rid of noncompetes will be good for workers, it will be good for the labor market, but it’s also going to be good for our economy. It’s going to allow a boost in new business formation, in new start-ups, and it’s going to mean that if somebody has a good idea, they’re able to bring that idea to market rather than being locked up.
SORKIN: I think a lot of people agree with you especially in the context of you are a waiter or a waitress at a restaurant with a noncompete. That makes no sense. A hairdresser, all sorts of people in that kind of space — I think it gets more complicated, the more senior you get in an organization. And if, in fact, the rule is not just to keep the current contracts of senior people in place, but new contracts would not allow for noncompetes, how you’re supposed to think about, how a business is supposed to make an investment around one particular individual, if, in fact, they can turn around tomorrow and go to the competitor across the street?
KHAN: So we absolutely heard some concerns from businesses, especially as it relates to trade secrets or a concern somebody would be able to leave and take the customer list. And those are legitimate concerns and that’s why we have things like trade secrets law, non-disclosure agreements, non-solicitation provisions. So, all of those would be able to stay in place. When it comes to, you know, investing in workers and investing in people, that’s something that will happen anyway, and if the goal of the business is to keep those people, then they can do that by creating all sorts of incentives, right? You can pay them more. You can provide better benefits. You can enhance the working conditions. And so, we believe that there are other levers that businesses can use to actually attract and retain people.
SORKIN: I’ll use an example just because we’re on TV. So, most people who are on TV have contracts that prevent them — so here we are at CNBC. NBCUniversal is the parent company. ABC is just down the street. Literally, “Good Morning America” is right there. CBS is just across the street as well. I can’t walk — I could not call up my boss today and say, you know what, thank you so much, this has been wonderful. I’m going to work over there tomorrow morning. Do you think I should be able to?
KHAN: In the — if you have a current contract that reflects the fact that this noncompete is in the contract, your compensation package probably also reflects that, we don’t want to disturb that, because we realized that for people who are, you know, doing very well for themselves, who are well-situated to bargain the contract, and the compensation already reflects the value of the noncompete. But going forward, we believe that those should not be in place and companies will be able to use other mechanisms to retain people if they want.
SORKIN: Let me ask you about what might be described as workarounds, which is to say, you look at the state of California where this is already in operation to some degree, and people can develop LLCs, partnerships and the like, partnerships in the state of California, if you become a partner, there’s a view that nondisclosure — not nondisclosure, but noncompetes are different. Do you think there are other places that — and by the way, the financial industry, private equity, banks and the like are typically not regulated by the FTC — are they regulated by this rule or not?
KHAN: That’s right. So, the rule is limited by the FTC’s authority and the contours of that authority. So in sectors where we don’t have authority, be it banks, be it certain types of common carriers, employees in those sectors will not be covered. But other government agencies do have the ability to reach that. I’m so glad you mentioned California because sometimes, one argument that gets made is that noncompetes are essential for innovation, but as you — as you noted, noncompetes have been non-enforceable in California since the 1800s, and I think people would be hard pressed to say that California hasn’t been able to innovate. And so, we think that eliminating noncompetes will actually boost innovation, boost new business creation, and be better for the American economy.
SORKIN: What do you say to the argument about just cost? The cost to a business to enforce nondisclosure agreements, for example, to enforce control of your own IP, could go up. I imagine you will see a lot more lawsuits in the future against employees, against rival competitors, because employees will go from one place to another, which they didn’t in the past, and they will have to go to court to enforce something that you could argue they were trying to enforce through the noncompete.
KHAN: If a business believes that an employee is violating trade secrets law, they absolutely can bring a lawsuit there. The way that our system of law and system of justice works is that you can only bring a lawsuit and only penalize somebody once they violate the law. The idea that, instead, we should have noncompetes that preemptively lock people in place just because they might hypothetically in the future one day, you know, violate trade secrets, it doesn’t really make sense. Noncompetes is way, way, way overbroad for that purpose.
SORKIN: I wonder if this comes into your calculus at all, the word “inflation”. If you look at this, if it works and is successful as you would want it to be, you could also argue, as great as it’s going to be for wages, it could also turn out to be inflationary.
KHAN: We absolutely predict that workers’ wages are going to go up, but we also predict that this is going to create new businesses, new start-ups, because a lot of the comments that we heard was not just from workers sharing how noncompetes had kept them in abusive jobs or kept them from a better opportunity. It was actually from people who saw their current employer wasn’t meeting a particular need in the marketplace, and they thought, I should be able to go start my own business, go meet that market need. We heard from start-ups about how noncompetes are preventing the most talented scientists from being able to work on the most innovative discoveries. And so, we think there’s a lot of innovation that’s being locked up right now that eliminating noncompetes will unleash, and that will be good for the economy overall.
SORKIN: Let me ask you a different question. We’re in an election year, 2024, and there is a question about whether your boss will be your boss at the end of this year or not, and therefore, whether you might even have this role or not. How do you think about that in the context of the work you’re doing now and whether that work would continue under if, for example, former President Trump becomes the president again?
KHAN: One thing that’s been so striking to me about the FTC’s work and anti-monopoly more generally is the degree of bipartisan agreement that monopoly power is hurting American people in their day-to-day lives. And I think we’ve seen a huge groundswell of public support for the FTC’s work, and so whoever ends up having the honor of being in these roles in the future, I think, will continue to have to stay accountable to the public and to public officials.
SORKIN: But do you say to yourself, it’s very possible that a lot of the work that you’ve done unravels, that some of the cases you’re bringing now or planning to bring, you know, become moot?
KHAN: Look, I absolutely hope we’re going to have more time. But if we don’t, we are taking our work — undertaking our work with an eye to some of the institutional durability, the hope that it can stay in place. Historically, there’s been a long tradition of lawsuits that were filed continuing and going forward, even once administrations change. And so, I expect that that would continue.
SORKIN: Lina Khan, thank you for joining us this morning.
KHAN: Thanks so much.
SORKIN: Appreciate it. Hope to see you again very, very soon.
