Month: December 2023

One of the most stunning twists in the recent five-day crisis at ChatGPT creator OpenAI came when some 95 percent of the company’s hundreds of employees threatened to quit. The staff planned to follow CEO Sam Altman to develop successors to ChatGPT at Microsoft instead. The threat appeared to mark a turning point in Altman’s ultimately successful attempt to return to OpenAI—it was also a scenario that businesses have the legal power to block in most US states.

California, home to OpenAI’s San Francisco HQ, is one of a handful states that bar the enforcement of noncompete agreements in employment contracts, which can forbid employees from hopping jobs to a competitor, often for years. That picture is now set to change, as a raft of new legislation aims to make more places like California.

Until this year, Oklahoma and North Dakota were the only states besides California that outlawed the enforcement of noncompetes. Over the past several months, more states began to follow suit, motivated in part by new research revealing the negative impact of NCAs on innovation and wages.

So far during the 2023 legislative session, 38 states have introduced a whopping 81 bills aimed at banning or curtailing NCA enforcement, according to the Economic Innovation Group (EIG), a public policy organization founded by Napster cofounder Sean Parker. The proposed laws range from industry-specific prohibitions to more sweeping bans. In total, 10 states have enacted some form of limitation on the agreements this year.

According to research from the Universities of Maryland and Michigan, nearly one of five US workers are subject to noncompete agreements, and a third of those are presented after the worker has accepted a job offer. In tech, that number is significantly higher: 35 percent of people working in computer- and math-related vocations and 36 percent of engineers work under noncompetes, the highest share of workers in all industries alongside architects, according to the paper. If not for California’s ban, that number would surely be higher. More than half of US states even allow companies to use NCAs to bind employees after they have been laid off, according to an analysis by the law firm Beck Reed Riden.

Those numbers now look set to shift. In July, Minnesota became the first state in over a century to enact a near-total ban on NCA enforcement. (All the bans allow for a narrow list of exceptions, such as permitting an entrepreneur who sells their business from immediately starting a competitor.) Meanwhile, the EIC, labor groups, and antitrust advocates are pressuring New York governor Kathy Hochul to sign a ban that the state assembly passed this summer.

Expanding Bans

At the federal level, the National Labor Relations Board declared this year that noncompetes violate the National Labor Relations Act, and the Federal Trade Commission proposed a rule that would ban the practice nationwide. Bloomberg Law reported that the agency is expected to finalize the rule in April, although business groups are likely to challenge it. In February, lawmakers reintroduced the bipartisan Workforce Mobility Act into the Senate, which would outlaw noncompetes in all but a few scenarios. California even strengthened its ban this year, outlawing the enforcement of noncompete agreements signed in other states and making it illegal to require an NCA.

California’s noncompete laws have famously been credited with helping birth Silicon Valley. “The traitorous eight,” a group of employees of Shockley Semiconductor, a pioneer of silicon-based semiconductors, decamped to found rival Fairchild Semiconductor in 1957, then some of them left to start Intel a decade later. Steves Jobs and Wozniak left posts at Atari and HP in the mid-1970s and started Apple. In 2011, Eric Yuan quit Cisco after the company rejected his idea for a video conferencing system. That same year he founded Zoom. The list goes on. A national ban on noncompetes could open the door for new startups in states like Texas and Florida where tech companies have flocked in recent years.

Meta is working all the angles it can to ensure it will still be able to profit from children’s Facebook data. After a recent loss in court, the company has now sued the Federal Trade Commission, arguing the agency doesn’t have the constitutional authority to change a 2020 $5 billion settlement over the company’s alleged lack of privacy protections.

The complaint, filed late Wednesday in the U.S. District Court for the District of Columbia, calls out FTC chairperson Lina Khan and other commissioners for exceeding the inherent powers of their agency. Meta has simmered for more than six months over the FTC’s claims the company violated that original privacy agreement.

Back in May, the FTC claimed Meta violated a 2020 settlement agreement and proposed it should cut the company off from monetizing the data for users under 18 years old. Meta contested the FTC’s plans in court, but on Monday Washington D.C. federal Judge Timothy Kelly kicked Meta’s hopes for a new court ruling out the window. Kelly was the same judge who approved the original 2020 settlement.

Yet Meta has continued to claim the FTC’s attempts to enforce new privacy protections were “without merit.” The company has already appealed the court’s decision, but this new lawsuit puts the onus on the constitutionality of the FTC’s powers to take any major overarching enforcement action.

The tech giant argued that the FTC was overstepping its bounds and infringing on its property rights under the 2020 order. Meta complained that commissioners “exercise executive authority while being unconstitutionally insulated from removal by the president” and further whined that Congress has allowed the agency far more authority beyond the original Federal Trade Commission Act of 1914, which first established the agency.

Meta needs to respond to the FTC’s demands by Dec. 11. The agency has routinely slapped Meta upside the head for allegedly breaking the terms of the settlement agreement multiple times. After Meta responds to the FTC, the agency could decide to ban the company from using any kind of facial recognition tech, as well as keep it from making cash off kids’ data.

But Meta claims it’s been a good little tech giant and has “accommodated the FTC for over a decade in connection with the FTC Proceeding that the FTC abruptly reopened.” The company claims it invested “billions of dollars” in implementing changes to its privacy policies required by the 2020 settlement. The company said the FTC’s new push to punish Meta is a “power grab.”

The FTC allegations came after Meta tried to draw more children into its grand Metaverse project Horizon Worlds. Some U.S. senators also complained about Meta’s attempts to draw youngsters into its big metaverse SNAFU. The new proposed order on Meta would force it to get approval from a third-party assessor to launch any new products, services, or features.