SmartTranscript of House General - 2025-04-09 - 9:05AM

[Chair Mark Mahaly]: Good luck. Welcome everybody to Vermont House general and housing. Today is Wednesday, April ninth, and we're gonna we have a full morning of hearings. We're gonna start with the hearing on three thirty four, which is an act relating for limiting employer restrictions on individuals separating from employment, specifically non compete clauses, stay or pay clauses. And we have four witnesses this morning. We will continue hearing on this probably next week. And so, gentlemen, I see you're all with us electronically. Pat, are you first? And Brian, you're second. And Sebastian, you're third. And Winston, you're fourth. Is that alright? Is that order fine with you, gentlemen? So I'll tell you what we'll do. We'll have the committee introduce itself to you. Although, I can see what you can see and you can barely see, but we'll do that anyway. You wanna start? [Vice Chair Ashley Bartley]: Sure. Good morning. I'm Ashley Barley. I serve Fairfax in Georgia. Joe Parsons, Newberry, Thompson, and Groton. Don Charlton, Athens, Chester, Grafton, and Windham. [Chair Mark Mahaly]: Representative Debbie Dolgen from St. Johnsbury, Concord, and Kirby. Gail Peso. I represent Chittenden twenty, Winchester. I'm Mary Howard. I represent Rollin City District six. [Pat Garofalo]: Good morning. I'm Elizabeth Burrows, and I represent Windsor one, which is Heartland, West Windsor, and Windsor. [Vice Chair Ashley Bartley]: Emily Krasnab, Chittendenai in South Burlington. [Chair Mark Mahaly]: And I'm Mark Mahale, and I represent towns north of Montpelier, Calais, Plainfield, and Marshfield. And I can tell you that the committee actually almost accidentally represents a broad swath of Vermont. I get that. Lots of different very rural, very urban or urban for us. So I guess that's we can see you quite clearly and hear you well. So, Pat, introduce yourself for the record and take it away. [Pat Garofalo]: Absolutely. Chair Mahali, vice chair Partly, and members of the committee, thank you so much for listening to my testimony today. My name is Pat Garofalo, and I am the director of state and local policy at the American Economic Liberties Project, a research and advocacy organization dedicated to reducing the power that dominant corporations wield over our economy and democracy. I'm here in support of h three thirty four, which which would prohibit the use of noncompete agreements. Doing so is a key step toward ensuring that workers are able to access good, high paying jobs and that corporations are not able to use their power to unfairly lower wages or working conditions for Vermont employees. About one in five workers nationally is bound by a noncompete, meaning tens of thousands of Vermont workers are potentially affected by these agreements, which limit or eliminate their ability to accept a job within their chosen field, usually within some geographic distance or for a set period of time. While non competes have historically been limited to highly paid executives or partners in a business, they've expanded far beyond that in recent years into industries such as fast food, health care, and custodial services. They are often imposed without workers realizing what they've agreed to or imposed under economic duress without the employee having the time or legal expertise to analyze what they're signing. These contracts can make it very difficult, if not functionally impossible, for workers to find a new job or leverage job offers they receive into better pay or working conditions at their current employer. Because, as I'm sure you all know, there are many factors that can bind workers to a place, including family and childcare obligations, they often can't get outside the range of a noncompete to take a new position, limiting not just their ability to find a new better job, but also their ability to start their own business in their chosen field. Combined with increasing labor market concentration, this gives employers a powerful ability to restrict wage growth, degrade working conditions, and prevent competition from new innovative firms. While workers and prospective small business owners have no recourse other than uprooting their lives, changing fields, or going without work for an extended period of time. To that end, extensive research has shown that non compete agreements stifle wage growth, innovation, and job creation, and raise prices for consumers. The Federal Trade Commission estimates that banning non competes would increase wages for Vermont workers by more than a hundred and twenty seven million dollars annually or about five hundred and twenty eight dollars annually per worker. Non competes are especially pernicious in a field such as health care where an inability to change jobs or start a new facility or service can have negative effects not just on the employee, but on the community as a whole. As one Vermont employee said of their noncompete, quote, I am a pelvic floor specialist in the state of Vermont. I have certifications, trainings, and a doctorate education. I'm currently being held at a place of employment due to a noncompete that I signed, regrettably so. I would love to be able to offer and extend my services to more rural areas of Vermont, but unfortunately, my hands are tied, end quote. Five states, Oklahoma, Minnesota, North Dakota, Wyoming, and California functionally ban most noncompetes, while most other states have some limit to their use. Wyoming's ban was adopted just a few weeks ago, passed by a Republican legislature, and signed by a Republican governor. [Chair Mark Mahaly]: I'm sorry. Which state? Wyoming. [Pat Garofalo]: And The FTC has also proposed a rule that would ban nearly all noncompetes, but it is tied up in court and may well be rescinded by the current commission, meaning it is more important than ever that states adopt their own rules to prevent the abuse of these contracts. Now opponents have cited the need to protect trade secrets or other proprietary information as a reason to continue to allow the use of noncompete agreements, but this is a false choice. Other contracts, including nondisclosure agreements, can be used to protect proprietary information without resorting to the blunt instrument of a noncompete. In fact, the FTC has said that it is, quote, not aware of any evidence. Noncompete clauses reduce trade secret misappropriation or the loss of other types of confidential information, end quote. So I urge the Vermont legislature to pass h three thirty four and ensure Vermont workers are able to determine their own economic futures for themselves. This is a policy with wide ranging bipartisan appeal whose time, quite simply, has come. Thank you for your time, and I'm happy to answer any questions. [Chair Mark Mahaly]: Thank you, members of the committee. Yeah. [Vice Chair Ashley Bartley]: Yeah. I believe you said one in five workers under a non compete. Is that a Vermont number, or is that a [Pat Garofalo]: That's a national estimate. So [Brian Callaci]: Do you have anything to [Chair Mark Mahaly]: work on? [Pat Garofalo]: In Vermont. I don't have a specific Vermont number. There was someone else on the panel, Mike. [Winston Berkman-Breen]: Okay. Do [Chair Mark Mahaly]: you think there is a Vermont number? Pat? I mean, and is is it something do you have any knowledge? You seem to you're citing Vermont a good bit. So do you have any sense as to whether there might be a Vermont number? [Pat Garofalo]: I don't, and it may be hard to get an exact number because as I said, oftentimes, workers don't even know they've signed these until they're being enforced against them. So it can be a little tricky to get an exact number. But that one in five number kinda holds across states, so I would guess it's somewhere in there. But I don't have an exact number for you. But, again, I defer to some of the other members of over the panel. [Chair Mark Mahaly]: Go go ahead. I'm sorry to I just wanted to follow. You have more questions. I'm done. You're done. Thank you. Other questions of Pat? Hey, Pat. Thank you so much for testifying. Appreciate where are you, by the way? [Pat Garofalo]: I am based in Washington, DC, the very perfect place to work on state policy from, obviously. [Chair Mark Mahaly]: Yeah. Right? Excuse me. Mike condolences. Alright. Next, thank you, Pat. Brian? [Brian Callaci]: Hello. Good morning. Yes. So my name is Brian Colacci, and I'm the chief economist at the Open Markets Institute. And we're a research and policy organization focused on anti monopoly policy headquartered in Washington, DC. Although I live in Peekskill, New York, and I'm from, from Rhode Island. So my PhD in economics is from the University of Massachusetts Amherst, not too far from Brattleboro, and my research focuses on the effects of restrictive contracts imposed on workers and small businesses. And I would really like to thank, Chair Mulholly and the other members of the committee, for the opportunity to participate in this hearing. So yeah, we at OpenMarket support banning non compete clauses and similar provisions and labor contracts, including stay your pay and training repayment agreements, because these prevent workers from changing jobs to work for the employer of their choice, or to start their own businesses. And by limiting worker mobility, non compete clauses drive down wages, they reduce the formation of new businesses, and they trap workers in jobs where they may be subject on, say, working conditions, discrimination, or abuse. So H. Three thirty four would, would prevent employers from imposing these these really pernicious contracts, for all workers, which is something we we we have been advocating for for some time. In March twenty nineteen, the Open Markets Institute led a coalition of civil society organizations, labor unions, legal experts, and economists that formally petitioned the Federal Trade Commission to use its authority under the FTC Act to issue a rule prohibiting non compete clauses, in labor contracts as an unfair method of competition, making it per se illegal. And, a year ago the FTC enacted a rule to do just that, but as Pat mentioned is currently facing legal challenges. So H. Three fifty four is really important, and, and things like H. Three fifty four because it will safeguard the rights of workers, consumers, and small business owners in the event the FTC's recently enacted final rule is struck down by a court or rescinded. And h three three four will also offers the opportunity to close important, loopholes in the in the in the FTC's final rule, such as the stay or pay contracts, and provide workers with additional enforcement channels to the FTC's admittedly sometimes cumbersome administrative process. So even if the even if the final rule is upheld, this this law will add a lot of value. Now, I'm going to stick to my wheelhouse, which is economics, and here the economic research is very clear. The evidence strongly demonstrates the harms from these kinds of contracts, non compete clauses. The use of non compete clauses reduces labor market mobility and generally depresses wages, wage growth, and small business formation. I can provide, you know, any citations or documentation if if that's, if that's desired. It affects as many as sixty million private sector workers nationwide. And one of the reasons to follow-up on on the question for Pat, it's difficult to get an estimate is because you have to survey workers or survey employers to figure out who's subject to these contracts. So I'll ask actually some of the economists who worked on this if that would be helpful and see if they have more granular data for Vermont, but one of the issues there is small sample size that can be difficult to get, but I I can follow-up. But anyway, the FTC estimates that these contracts cost workers between two hundred fifty and two hundred ninety five billion dollars per year. Again, nationwide number. And, yeah, they're imposed on workers. They're not they're not negotiated. So the national survey that we have done found that only ten percent of employees negotiate these non competes, and one third are presented with them only after accepting their job offers. So, you know, you've done all the interviews, you're you're sitting down for your HR packet, and there's a non complete clause in there. No one's gonna turn that down, you know, and and and then that late in the game. So non compete contracts and similar contracts to limit worker mobility, they do suppress wages. A recent study of two thousand the two thousand eight ban by the state of Oregon found the non compete. Banning non competes increased wages by fourteen to twenty one percent. That's a pretty substantial number. Another study found that wages of tech workers rose four percent after non competes were made non enforceable just in that sector in Hawaii. And, you know, in particular the adverse effects of restrictions on labor mobility, they appear to be especially pronounced for women and people of color. Recent research has found that stronger enforcement in non compete clauses reduces earnings for female and non white workers by twice as much as for white male workers. And it's not just workers who are harmed by noncompetes. Employers' use of noncompete clauses also has adverse effects on competitors and consumers in product and service markets. The use of noncompetes by incumbent corporations for specialized workers slows the entry and affecting economic dynamism. For example, in with non compete clauses, employers can foreclose competitors in downstream markets. They can tie up workers that have particular skills with these preventing new companies from entering, and small companies from from hiring the labor they need to compete effectively and grow. So they they cement cement monopoly power and and and cement market dominance. So there's been recent studies found that the just an average size increase in the enforceability of non competes reduced the mobility of inventors by twenty two percent, and it's and it and it reduced patenting by thirteen to twenty percent. And that same Hawaii law I just mentioned that made non competes enforceable for technology workers, once that was in effect, there was a ten percent ten point two percent increase in the number of technology establishments. So workers it's it these non competes prevent workers from starting their own businesses. And this this this this kind of monopoly power can inflict significant and durable injuries on consumers, so it's not just workers who end up paying higher prices and that are pried with higher quality goods and services. And that that really matters when we're talking about things like health care, things that people really need to survive literally. The FTC estimated that Bandi non competes would lower the spending on physician and clinical service services by, you know, calculating, this is a lower estimate of the present value savings over ten years at seventy four to a hundred ninety four billion dollars. So finally, I would just like to, sort of, address some of the reasons, given for non competes. So the harms for non competes, they're real and well documented. There's a very large economic literature on this by now, but the justification is frankly, very unpersuasive. Employers and representatives sometimes assert that non competes are necessary for protecting trade secrets, customer lists, and other business information. Pat covered this, earlier. Just add a couple of extra facts. And according to this theory, restricting worker departure is necessary to prevent workers from appropriating the know how, and taking it over to rival companies, or, you know, taking something they learned and starting their own business. But to the extent employers do need to safeguard proprietary information, they do have less restrictive alternatives for prevent preventing unauthorized disclosure. There's copyright law, there's trade secret law, there's targeted non solicitation agreements, and that those laws are there to to protect valuable information and and prevent it from being disseminated. H. Three thirty four actually makes explicit allowance for such contracts and for really high level workers who have regular access to sensitive information, employers also have the ability to opt out of at will employment and enter into fixed term employment contracts that commit both parties to the relationship for a period of time, like we see in professional sports or in some of the entertainment industries. And so in contrast, these other methods for protecting secret information non competes are are the they're the wrong tool. First of all, they're overbroad. They restrain worker mobility with the aim of protecting business information even if it's dated. You know, you you you can't leave your job because of a training manual you got, you know, five or ten years ago. And at the same time, they're too narrow because non competes don't prevent unauthorized covert disclosure of trade secrets to competitors during the employment term. So they're just not the right tool for those kinds of purposes. And the final argument I wanna just I I wanna address, before I close is, there's an argument they reduce employee turnover and prevent, promote the employer investment in worker training. By by barring workers from leaving and taking their skills to rivals, non competes give employers the incentives to train workers, and that ultimately benefits both parties. But that doesn't hold much water because, first of all, by the same token, it not competes also would lower workers' own incentives to invest in their own training. Why would you try to learn new skills of your current employer if you can't find a new job and get fair fairer value for them? So the worker will reduce their own investment in training. But set second, and we actually have very good empirical evidence for this, when non competes are banned, employers don't just give up. They find other better ways of retaining a loyal workforce and which and protecting mutual investments and training. They offer higher wages. They offer better working conditions. And most importantly, they offer stability, the promise of future promotion, and wages wages, contingent on good performance. So when workers are prevented from using non competes, they end up raising wages. Some of my own research has shown that with no poach agreements. So when Washington state banned non competes for employees earning less than hundred one hundred thousand dollars a year, employers who really wanted to use that non compete to to keep workers at their jobs would have then you know, if you're paying someone ninety eight thousand dollars, you would have bumped them up to a hundred so you could so you could take advantage of of of the non competes. But workers didn't employers actually didn't do that. We didn't we didn't see those those effects. So and the very last page, the last paragraph. Given the documented entries to workers for non competes and the speechless employer justifications for their use, we support a categorical ban on these contracts like the one in h two three four, and we we would encourage Vermont to to maintain the universal approach and and not include carve outs like other states have done, you know, tied to income or the line of work or the employment status. Thank you for your time. I'm I'm happy to take take any questions. [Pat Garofalo]: Questions [Chair Mark Mahaly]: of Brian? I have a couple questions, Brian. Who were the plaintiffs in the FBC case? Or what what was their nature? [Brian Callaci]: Yes. I [Chair Mark Mahaly]: mean, like, specifically, but, like, were they chambers of commerce? Were they [Brian Callaci]: what were they? I see. In the challenge to the rule? [Sebastian Martinez Hickey]: Yeah. [Brian Callaci]: It was there's there's two challenges. Yeah. It's yeah. These these plaintiffs, I believe, have been motive. They they were mobilized by by the US Chamber of Commerce, but there's one is, I think, a landscaping company [Chair Mark Mahaly]: in Okay. But that's actually I just [Vice Chair Ashley Bartley]: The other one, [Brian Callaci]: you know, I forget villages. I then one of the panel knows, but I forget who the actual Chamber [Chair Mark Mahaly]: of Commerce. I just wanted to know who was dissatisfied. And, to your knowledge, have you seen any litigation on the other side challenging non competes on the grounds that they're unconscionable or that they're adhesion contracts? Have you seen any anybody talents noncompete successful? [Brian Callaci]: Yes. So the the current the current legal test and I'm and with the caveat that I'm not a lawyer, I'm I'm just an economist. But the yeah. The the the the one of the reasons why the the law it's important for statutes and the FTC rule to ban these is because the they end up being challenged under under rule of reason adjudication under the antitrust or or under unconscionability laws, which require plaintiffs to to to hire, in some cases, very expensive economic experts to show the damages. And and because the the evidence is overwhelming that, you know, that these these contracts have very little justification and are are harmful, we think it's important to get to just to just just to ban them. But, yeah, there has been workers without without a without a law banning it. Workers are able to file lawsuits, but they they are they face pretty stiff legal barriers because of all because of yeah. They have to prove unconscionability. They have to prove Right. You know, unreasonableness. And also yeah. And and, again, most workers yeah. The final point I would make is that workers even me I have a PhD, and if I sign a contract, I assume it's enforceable, and I have to obey it. You know, I I don't go looking for a lawyer to find out how I can get out of it. So even even highly paid workers, when they sign a non compete, generally won't challenge them because, hey. I signed a contract. The contract is a contract. [Chair Mark Mahaly]: Thank you. Any other questions? Brian, thanks a lot for your testimony. Appreciate it. Sebastian, you're up. [Sebastian Martinez Hickey]: Thank you. Good morning. And I'm gonna share some slides in a second, but I wanna say thank you for the opportunity to speak today, chair Mahali and members of the committee. My name is Sebastian Martinez Hickey. I'm an economic analyst at the Economic Policy Institute, which is a nonprofit nonpartisan think tank that's dedicated to doing policy research focused on low and middle income workers. So we we analyze policy and we propose policy that we think is going to protect and improve the economic conditions of those workers. I'm speaking today in support of house bill three three four. So if you give me a second, I will, share my slides. Are those visible for the everyone? [Chair Mark Mahaly]: Yeah. That we can see them. Thank you. That's Poke me out. Thank you. [Sebastian Martinez Hickey]: As Pat and, Brian have have gone over already, businesses justify non competes in a couple of different ways. They claim that they are needed to protect trade secrets and client lists. They also claim that they are needed to protect the investment that businesses, put into training workers. But as we come to understand, these types of agreements have become pervasive across their the economy, and they're often used beyond any legitimate justification. Under the status quo that we exist in right now, existing firms benefit from the widespread usage of non competes, because they limit their employees outside job options and thus increase their ability to, negotiate pay with those employees. And they limit the ability of new firms to enter into the market and challenge the market share of existing firms. Who loses or who's disadvantaged under this scenario? Workers who are paid lower wages would be entrepreneurs who cannot or more limited in their ability to start their own businesses. And in aggregate, this can affect, a state's economy like Vermont's as a whole as it's denied higher productivity firms, greater business competition and stronger wage growth, which can result in increased consumer spending in the state's economy. So Pat said, earlier, there are one in five workers. Other studies say, like, around one in four workers are subject to non compete agreements. I don't have Vermont specific data, but if we were to bring this figure over to Vermont, it'd be around eighty seven thousand workers in the state, that were subject to non competes. It's often assumed that non competes only affect high wage workers in knowledge specific occupations, but this is not the case. Non competes often target low wage workers who have no access to anything resembling a trade secret or a unique client list. Nationwide, around fourteen percent of the workers earning less than twenty dollars an hour have noncompete agreements. To provide a little bit more texture to both of these claims, this is table that this is a table that, breaks down the prevalence of noncompetes, by workplace industry at the national level. So you have the the industry grouping and then the share of workplaces where all employees are subject to noncompete agreements and the share of workplaces where any employees are subject to non compete agreements. You'll see that business services has a disproportionate or a higher level of, the prevalence of these types of agreements, but really they are widespread, throughout the economy. For example, more than a quarter of the retail trade workplaces in this study subjected all their employees to non compete agreements. This is a breakdown of the same study, but by the average hourly pay of the employee in each workplaces, and again we see that non competes are quite common for low wage employees. If you look at the the category that's thirteen dollars an hour to seventeen dollars an hour, more than half of the workplaces in this study, subjected to at least some of their employees to non competes, and what the asterisks are indicating here is that that is significantly higher than the average for all workplaces. And this type of finding has been confirmed by other research. For example, economists from the Federal Trade Commission and the University of Maryland found that the, the modal or most common worker with a non compete is an hourly employee earning around fourteen dollars an hour. Non competes lower wages for workers. It's important to remember that the only source of leverage that a nonunionized worker has over their employer is their ability to quit and find a new job. Non competes kneecap this leverage by definition, and as a result, they lower wages for workers. Evidence across a group of studies, find that these agreements decrease wages by between two to three percent, four percent, and other marks. This wage effect is for all workers in the industries where noncompetes are common, not just the workers that have actually signed the [Chair Mark Mahaly]: noncompete. Oh, yeah. [Sebastian Martinez Hickey]: And as Brian mentioned, the evidence is also greater. The evidence also shows that these negative wage effects are greater for women and black workers than for white men workers. Going back to, an argument that I mentioned earlier, some firms argue that they need non competes because they train their workers on the job and they needed to make a return on their investment. The economic research finds that the gains that wages or gains in wages that workers receive from this training is usually outweighed by the wage suppressing effects that I've detailed here. It's also notable from an economic theory perspective. Since non competes actually lower the wages of workers, it shrinks the pool of available workers for particular jobs. So there might be instances where by high in payer wages, you actually increase the number of workers who are willing and able to work at that wage level, And you might find workers who, don't need who already have the experience, who don't need the training that, is needed for the job. [Chair Mark Mahaly]: Sebastian, I have a question for you. Actually, it's for any one of you. To I imagine you've had the opportunity to read noncompete provisions and contracts. Right? [Sebastian Martinez Hickey]: I'm not a lawyer, and I'm not super familiar, but I can do my best to try to answer you. [Chair Mark Mahaly]: Oh, do you happen to know whether they apply if something's been fired? [Vice Chair Ashley Bartley]: We do. [Sebastian Martinez Hickey]: I don't know the answer to that question. I [Winston Berkman-Breen]: can I can briefly speak to that, and I'll address it in my testimony coming up? But in general, I mean, they, of course, vary on the actual terms, but there are non competes and stay or pay provisions that apply regardless of the nature of the termination. [Chair Mark Mahaly]: Okay. Thank you. [Sebastian Martinez Hickey]: Thank you, Winston. Yeah. So, non competes, their claim that they are necessary for incentivizing innovation by protecting trade secrets, protecting proprietary information, but these contracts actually hamper economic dynamism. They prevent would be entrepreneurs from leaving their current employer and creating their own business. One study found that banning non competes would boost business formation by around three percent. Another study showed that when non competes are enforced more strictly, patenting decreases, by between eleven and nineteen percent over the course of ten years. And that includes significant decreases in what are they describe as breakthrough innovations, the key technological innovations that are then built on by further patenting. So again, this is stifling, for the economy. As Brian detailed, I think quite well, businesses don't need non competes to protect trade secrets, because there's already intellectual property rights systems, that protect this type of information. And California has made it illegal to enforce non competes for more than a century, but it still has a lot of, global research and technology hubs, that that don't need non competes to be successful. It's also worth noting that actually, let me just go to the next page. I have one more point to make is that, in the states where non competes are unenforceable, employers still use them, and they still have a depressing effect on wages because most workers aren't going to know whether the contract they have that they've signed is illegal or unenforceable. So it's important that the state considers establishing real penalties and proactive enforcement mechanisms to deter employers from attempting to use them. Although I I think that house bill two two four has good language around making sure that employers disclose that these contracts are unenforceable and void. And then just, one last comment to make about the general state of state policy. Most States have some sort of restriction on non competes, but there are five States with, effectively full bans, California, Minnesota, North Dakota, Oklahoma, and Wyoming. California, Minnesota, and Wyoming have recently passed those bans, whereas North Dakota and Oklahoma both have very longstanding bans on this type of policy. And there are also a group of states that heavily restrict or they prohibit non competes for workers below a certain income threshold, which tries to decrease their usage for low wage workers. So, you know, in summary, non competes, they reduce wages, they reduce job mobility, and they cost the economy by reducing the efficient matching of workers to high productivity firms. So for that reason, I urge the committee to, pass house bill three three four. Thank you. [Chair Mark Mahaly]: Thank you. Questions of Sebastian? Yes. Go ahead, Ashley. [Vice Chair Ashley Bartley]: Thank you. I my question so you had mentioned, and I think a few others have mentioned, legitimate concerns of an employer. What would you consider a legitimate concern for an employer to constitute a non compete? [Sebastian Martinez Hickey]: Well, I think, I think Brian really articulated this well. I think there are legitimate concerns about protecting trade secrets for a business, but there are other types of contracts that can be used to, protect that sort of arrangement. And I think, you know, house bill three three four is written in a way that prevents, or allows non solicitation agreements, non disclosure agreements that are important for protecting intellectual property rights and other types of, business information. [Chair Mark Mahaly]: In other words, none. Other questions? Thank you, Sebastian. Appreciate it. Winston, you're on. [Winston Berkman-Breen]: Great. Thank you so much. Thank you, chair, members of the committee, for the chance to testify. My name is Winston Berkman Breen, and I'm the legal director at the Student Borrower Protection Center. We're a nonprofit legal organization focused on alleviating the burden of student and worker debt, for millions of Americans. I'm especially excited to testify with you all today. Although I'm not from Vermont, I'm zooming in from Brooklyn. It's an adoptive home for me. My parents live in Plymouth, Vermont, and my sister in Cavendish, both in Windsor County. So great to be with you in spirit, if not in person. So today, I'm gonna focus my colleagues have addressed non competes more broadly. I'm gonna focus on the stay or pay provision of the bill. I'm gonna start by providing some background on stay or pay terms as a course of employment, tool, and then I'll discuss recent federal efforts, to regulate these provisions, and we'll conclude by giving some feedback about the specific proposals in age three thirty four. We'll have plenty of time for questions. The basis of my testimony today is from our work at the Student Bar Protection Center. We're litigating several cases against the enforcement of stay or pay terms. We published several reports and legal articles topic and regularly engage in legislative and regulatory advocacy related to stay or pay provisions. As the term suggests, stay or pay provisions are employment contract terms that force workers to pay their employer if they leave their jobs. Full stop. In this way, stay or pay terms can be more pernicious than their cousins' noncompete provisions since it doesn't matter why you leave or what or where you go to work or even if you work. No matter what, if you leave, you have to pay. This builds on an existing power imbalance in the workplace. Employers can still terminate workers at will, but under stay or pay terms, workers cannot financially afford to exercise their reciprocal right to quit at will. These terms are forced on workers as a condition of employment, allowing firms to use the threat of debt collection or litigation to lock workers in place, limiting their mobility and bargaining power and preventing them from leaving. When they do leave, workers are hit with crushing financial penalties just because they had the audacity to quit. This puts workers in a bind to stay and endure unlawful or unsafe working conditions, which regulators, lawyers, and judges have suggested create unlawful modern day indentured servitude or leave and face a financial penalty. So for example, a student trainee truck driver accepted a job these are all true examples, accepted a a job that included a stay or pay provision. She was then sexually assaulted on the job. When she reported it to the company, they failed to take action, and she subsequently quit. They then tried to collect nine thousand dollars from her. Another example, a recent nursing school grad took a job at a hospital in a neurological ICU, seemed like a dream job, but the unit was short staffed if his training was cut short by a month in order to help, you know, free him up to fill some staffing gaps. He was then also asked to train the newest nurses even though he didn't feel as if he'd been trained on the content he was supposed to teach. He felt that working conditions were unsafe and that he couldn't provide quality care for his patients, but he was afraid to speak up and leave because his employment contract included a seven thousand five hundred dollar stay or pay provision with a twelve percent interest rate if that provision was activated. When factoring in his thirty five thousand dollars in nursing school loans, he just financially could not afford to leave or to cause trouble. So firms ranging from hospitals to roofing contractors are harnessing stay or pay contracts in an attempt to evade state and federal worker protections, including state level bans on non competes, which some of my colleagues just spoke about. One trade association for, roofing contractors openly advises in a publication that its members use stay or pay provisions in jurisdictions where traditional non competes are banned. One of the most common types of stay or pay contracts is called a training repayment agreement provision or TRAP, t r a p, which have become increasingly common since the COVID nineteen pandemic and are often presented as a condition of employment and require workers to receive so called on the job training regardless of the quality or necessity of that training to pay back the supposed cost of that training if their employer if they ever leave their job. They have to repay their employer. A few more examples of these sort of trap stay or pay provisions. So I've spoken with a licensed career aesthetician in upstate New York, twenty years experience, who left a beauty salon only after three and a half months due to a toxic work environment. Her employer then sued her in local small claims court for five thousand dollars claiming that this was the price of the training she received in her salon. The training was showing the career aesthetician the way that the salon owner preferred someone to thread eyebrows in her shop and doing it on paying customers. This was all for a job that only paid fourteen dollars an hour, mind you. Another quick example, where we've helped someone who attended PetSmart, the, the pet chain store. PetSmart operates something called a grooming academy, which promises free, training and dog grooming. But hidden in that promise is a condition that if you leave the PetSmart network within two years for any reason, you then owe them five thousand dollars for the supposed cost of that free training. The training does not result in a certification or a license, just a printed out computer diploma from PetSmart. The worker decided that she needed to leave PetSmart because of unhealthy working conditions and low pay. And soon after that, she saw a five thousand dollar debt posted to her credit report from PetSmart. We're also in litigation representing a cargo plane pilot whose former employer is seeking twenty thousand dollars for the supposed training she received even though the training is required by federal law and is not transferable to another employer. And so the benefit of that training is really with the employer, not the pilot. So in other type these are just a few examples, but in other types of stay or pay contracts, employers have demanded that departing employees pay them for not providing four months notice of resignation or the cost of their replacement for liquidated damages or even for lost future profits. So traps also in addition to sort of shocking the conscience, traps also violate, fair wage and labor laws, which generally require that wages be paid free and clear and that they be above or at the minimum wage. The existence of a trap, for example, means that wages are not, in fact, free and clear because they're effectively conditioned on the worker staying for that prescribed period of time in the trap. And if the worker leaves and the trap payment is demanded, that has the practical effect of of suppressing when calculated altogether, suppressing the past wages and often bringing them below, the minimum wage amount. So as my colleagues on the panel have mentioned, it's actually very hard to quantify the total number of these provisions out there because they're all private contracts. You'd have to survey them or otherwise compel contracts to be submitted and reviewed. But so there's no definitive database or statistic, but I think it's also very clear that these are ubiquitous across industry types, job types, geographies. There's really no question that Vermonters are subject to some form of stay or pay provision in the same way that they are subject to some form of noncompete. So very briefly, I'd like to talk about what's been happening at the federal level around stay or pay provisions, especially in the last two years. So the former national relations national relations board general counsel, Abruzzo, issued a memo in October of twenty four last fall explaining that stay or pay terms violate federal worker protections because they, quote, have serious potential for suppressing union organizing and other concerted activity for mutual aid or protection, including by impairing job mobility, end quote. She also noted that, quote, employers have used these provisions as coercive restrictors of employee mobility, which is not a legitimate business interest. The US Department of Labor sued a company called Smoothstack, which is an IT staffing agency, for trapping employees in their jobs by demanding they pay up to thirty thousand dollars if they leave the company before completing four thousand hours, which is roughly two years, of billable work, causing some employees to earn less than the federal minimum wage, which is a violation of the Fair Labor Standards Act. The Fair Trade Commission defined traps in the rulemaking you heard about last year as defacto traps and stay or pay generally as defacto non competes in that final rule because of how they unfairly limit competition and restrict mobility. Again, as you've heard, that rule is currently being challenged. Finally, the Federal Consumer Financial Protection Bureau issued a report highlighting how traps and other types of employer driven debt can actually violate consumer protections as well. So although there's been a lot of activity and it's encouraging to see, much of this has been rolled back or enjoined, and we don't candidly expect to see much more progress on the federal level on stay or pay or trap issues. So for this reason, it's really important that states step in, and so I applaud you for that. So just to conclude, I wanna talk very briefly about h three three four itself and some of the specific stay or pay provisions. Again, I I applaud the sponsor and the committee and the legislature for hearing this. It's a very timely issue. That being said, I do wanna call attention to a concern I have about the stay or pay portion, which is an exemption found in four ninety five r sub paragraph c, which I think serves as a loophole that could really be abused to allow effectively all stay or pay provisions to remain in place even once the law is enacted, specifically focusing on the voluntary agreements and the reasonable cost part of, of that exemption, which I believe put individual workers at a disadvantage. So allowing for voluntary agreements, voluntary stay or payer agreements, really overlooks the inherent power differentials between employers and workers and the fact that employment agreements are essentially contracts of adhesion for workers, and and they really can't meaningfully bargain and negotiate. And focusing on reasonableness, as I think Brian mentioned, creates just a vague standard that's gonna be very difficult to administer and require lengthy and expensive individualized litigation. So, in the alternative, to the extent that the legislature does want to include specific employment benefit contexts in the from the bill's coverage, which is to say, allow certain types of employer repayments, after the bill is in effect, I suggest putting in much more specific and explicit and narrowly tailored protections that follow the following three sort of guidelines or protections. So the first is any agreement to repay an employer should be limited to instances in which there is an actual bona fide benefit conferred to the worker rather than the on the job training for the worker's current job or the job they're applying for, which we would expect them to get as an employee of a firm. Second, any agreement to repay should be in a stand alone agreement separate from the employment agreement to ensure that workers can accept a job without also agreeing to receive and pay for a benefit that they may not want, especially since the benefit shouldn't be necessary for that job itself. And finally, the bill should include strong protections against payment obligations in the case of wrongful termination or termination for no cause or constructive termination to protect against toxic work environments and abusive employment practices. So for example, if an employer offers to cover a worker's tuition for, like, an accredited degree, like, you know, you can go get your MBA or nursing degree, but you have to come back and work here for two years first. Otherwise, you have to repay me. That scenario, I think, should be more carefully narrowly tailored and put into the bill explicitly as opposed to the factors that are currently there. So I'll end there. Thank you again for the chance to testify and for considering this bill, and I'd be happy to answer any questions. [Chair Mark Mahaly]: Questions? [Vice Chair Ashley Bartley]: Tom, sort of a high level philosophical question. How would you consider work in public service as, as an agreement to have your student loans forgiven? If you leave that before ten years, you're you're paying your loans. [Winston Berkman-Breen]: That's correct. You're paying your loans, but you're not paying anyone back. That's the huge difference here. Right? So under the federal policy You're paying the yeah. [Vice Chair Ashley Bartley]: The Department of Education, you're paying somebody back. [Winston Berkman-Breen]: But you're also paying them during that whole time. So if you're paying it's a ten year program. You have to make tenures worth of payments. If for some reason after six years, you switch into the private sector, you just keep making payments on your loan. So you're paying as you go it's a pay as you go sort of program, and they cancel any remainder. So no one is covering that cost for you k. During that program. That's a great question. And, candidly, in this context, they are pay. We we hear that a lot. Usually, as a sort of, red herring by some industry actors who are trying to say this will disrupt these existing programs. These programs, although similar in that they are relate to employment and debt, are are distinct in how they're structured. [Vice Chair Ashley Bartley]: Alright. So if a job requires specialized training and the employer says, [Winston Berkman-Breen]: you go [Vice Chair Ashley Bartley]: get the training and you pay for the training and then apply for the job, which I think would be pretty typical, Is that always to the benefit of the employee? [Winston Berkman-Breen]: It's, you know, it's hard to answer these questions in the abstract, but in an instance where there is a type of training or certification that the employee gets that they then have and is transferable from job to job to job, you know, you there's an argument for saying that the employee should foot the bill for that. If it is so specialized that is just to that employer, then the argument is that the employer should be the one footing that bill as necessary training for that job that really can't be brought or transported somewhere else. [Chair Mark Mahaly]: So, for example, you would think let's say a condition of employment is that you have a commercial driver's license. License. You would think according to you, that's a legitimate requirement for an employer to say you go for that on your own or if they want to pay for it, if you leave, you gotta pay us back the cost of getting that commercial driver's license. [Winston Berkman-Breen]: I think that's a good example where you can argue that repayment might be fair, but then it's really important to have those consumer protections about abusive work environments. Like, what we don't want is that scenario where, sure, the employer footing the bill for the CDL seems appropriate, but then it's you know, you're getting sexually harassed on the job, and you have to leave for your personal safety, and then somehow that still triggers the repayment obligation. Right? So it's it's a combination of when is it repayment appropriate and where are we gonna have a safety net or release valve for instances where the employer has misbehaved and repayment in that instance is not appropriate despite the training. [Chair Mark Mahaly]: Do you have language that you could provide us on this this last piece on your hesitation about three three four? [Winston Berkman-Breen]: Certainly. I'd be happy to follow-up with the sponsor committee staff to provide some language. [Chair Mark Mahaly]: Could you send it to our committee assistant? Do it has been corresponding with you already to arrange your testimony? [Winston Berkman-Breen]: Absolutely. Yep. [Chair Mark Mahaly]: Thank you. Other questions? Tom? Another question. [Vice Chair Ashley Bartley]: When it comes to trade secrets and proprietary information, several of you have mentioned that there are other means to protect that or to remediate damages. Are there not all also other means to deal with workplace harassment? [Winston Berkman-Breen]: I I I think there are, but the question is whether in addition to doing that, are you being saddled with debt at the same time. Right? Like, in certain work or at least this is true for the stay or pay provision. I can't speak as much to the non noncompete. But in any of the instances that I cited or others, you can imagine someone needs to remove themselves from that scenario. Right? They're being sexually assaulted. You know, they just can't be involved with a fifty patient caseload on a hospital floor or something to that effect. There may still be recourse against the employer, but at the same time, they shouldn't have seventy five hundred dollars showing up on their credit report. [Vice Chair Ashley Bartley]: Right. But it is there any thought to what their do they have any responsibility to exhaust other options before leaving an employer with an nine thousand dollar training bill? Should they not pursue the these other, you know, labor protection provisions? [Winston Berkman-Breen]: Yeah. I I would say no. Thank you for the question, but I think that this is actually a really good instance for why it is problematic for employers to get into debt issues and sort of blur the line between employer and creditor. Anyway, these are sort of separate and rather siloed areas of law, sort of consumer protection, worker protection. And the harm that can be caused by it suddenly throwing a debt, whether it's seventy five hundred or thirty thousand dollars on someone, can be pretty irreparable to their credit, to their ability to sort of make monthly payments that are necessities, rent, food, etcetera. So I I don't think that having an administrative procedure requirement that puts a lot of onus on the individual to navigate that, it can be expensive as well, before they can be protected from a financial burden, is is sort of justified by the fact patterns we typically see. [Vice Chair Ashley Bartley]: Yeah. I'm not arguing that the ability to get away from the say or pay provision should apply in that case [Chair Mark Mahaly]: Mhmm. [Vice Chair Ashley Bartley]: But as an alternative to doing anything else about the situation. [Winston Berkman-Breen]: Oh, yeah. I I certainly don't [Vice Chair Ashley Bartley]: not dealing with bringing charges or, you know, pursuing the other venues of the law to protect an employee just disregarding those things and leaving. I I have to think about that. [Winston Berkman-Breen]: Yeah. And if I understand your question correctly, it is my under I don't think the intent or the language of the bill would preclude someone from also taking those sort of more traditional steps. [Chair Mark Mahaly]: But you're saying, Winston I just wanna clarify what you're saying in response to Tom's quest you seem to be saying, okay. There's a body of the law that lets an employee harrat claim harassment. It's true. It might be burdensome pursuant or not. But what you're saying is absent a say or pay agreement, an employee can decide, I don't wanna work there while this is while I spend a year or two pursuing my harassment claim. But then if there is a stay or pay provision, they kinda have to stay. [Winston Berkman-Breen]: Or pay. That's exactly right. [Chair Mark Mahaly]: Or pay. Yeah. The alternative is, though, let's say they win the they do stay and they win harassment action and leave, they'd still have the success of the harassment action. Would the contract still be enforced against the worker even though they won the harassment action? [Winston Berkman-Breen]: Unless something in that harassment, adjudication voids and nullifies that provision of the contract, in my mind, they are separate proceedings. And so, yes, I mean, the stay or pay is triggered for any reason or no reason. Right? And so I don't see why a sexual harassment claim, unless it takes out the entire contract, which typically is not the case, why it would relieve them with that obligation to pay that contractual obligation to pay? [Chair Mark Mahaly]: So if let's say, it's because of unsafe work environment and they and it they decided to leave well or blow whistle whistleblower. And so the employer for unsafe for violating safety laws or something like that, that would not affect the stay or pay contract? [Winston Berkman-Breen]: Not I I would not expect that it would unless, again, there is something very specific about the stay or pay provision that is the reason the government agency came in. And as a result of the government action, that provision was voided. But if it's, you know, you know, quote, unquote, merely addressing the subject of the whistleblowing content, you know, not letting people take breaks or unsafe work environments, then, no, I don't see why that would affect or displace the stay or pay obligation. [Chair Mark Mahaly]: Well, when you were I asked you to give us language, and so, you know, it may be in the language. But you were saying you need you need to include some kind of protection against leaving for legitimate reason well, for I don't know. For reasons of violation of law in the workplace, are you suggesting that the stay or pay contract that we would require the stay or pay contract to provide such an exception? [Winston Berkman-Breen]: Well, currently, the drafted language I have right in front of me does include a provision that says the provision does not require repayment if the employee is terminated without cause. [Chair Mark Mahaly]: Yeah. [Winston Berkman-Breen]: And I think the intent there is that if an employer just decides at a whim to fire you, maybe they're do maybe they're firing you specifically to trigger the stay or pay. Right? That doesn't seem appropriate. I think you could just very easily revise that sentence to include, you know, other other instances that we wanna protect against, like constructive termination. Right? You know, they're they're effectively making such a terrible environment that people have to quit that they don't wanna be the one to fire you. So I think that's a way to address these issues. [Chair Mark Mahaly]: Great. Thank you. Tom, do you have more questions? Moment. This is yeah. Okay. Other questions from the committee? I would say we have another minute or two. Is there any question of any of the witnesses? Gentlemen, thank you so much for your time and your work. We appreciate it. It's great to have you here. Come to Vermont sometime, Dylan. And thank you. [Sebastian Martinez Hickey]: Thank you. Thank you [Winston Berkman-Breen]: so much. [Chair Mark Mahaly]: Members of the committee, we're about to hear some testimony on Prop three. No. Wait a minute. A walk A walk through and committee discussion on prop three, and then proceed immediately into introductions, just introductions of build. Do you wish to take a five minute break now? Shall we take a break now? Why don't we take a break for five minutes and let's come back?

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