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How Apple Has So Far Avoided Layoffs: Lean Hiring, No Free Lunches

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No company is certain to avoid significant cutbacks in an economic environment as volatile as the current one, and Apple isn’t immune to the business challenges that have hit other tech giants. It is expected next month to report its first quarterly sales decline in more than three years. Apple has also slowed hiring in some areas.

But the iPhone maker has been better positioned than many rivals to date in part because it added employees at a much slower clip than those companies during the pandemic. It also tends to run lean, with limited employee perks and businesses focused on hardware products and sales that have so far largely dodged the economic downturn, investors say.

An Apple spokesman declined to comment.

From its fiscal year-end in September 2019 to September 2022, Apple’s workforce grew by about 20% to approximately 164,000 full-time employees. Meanwhile, over roughly the same period, the employee count at Amazon doubled, Microsoft’s rose 53%, Google parent

Alphabet Inc.’s

increased 57% and Facebook owner Meta’s ballooned 94%.

Apple has about 65,000 retail employees working in more than 500 stores who make up roughly 40% of the company’s total workforce.

On Friday, Alphabet became the latest tech company to announce widespread layoffs, with a plan to eliminate roughly 12,000 jobs, the company’s largest-ever round of job cuts.

Alphabet’s cut follows a wave of large layoffs at Amazon, Microsoft and Meta. The tech industry has seen more than 200,000 layoffs since the start of 2022, according to Layoffs.fyi, a website that tracks cuts in the sector as they surface in media reports and company releases.

The last big round of layoffs at Apple happened way back in 1997, when co-founder

Steve Jobs

returned to the company, which then cut costs by firing 4,100 employees.

So far, Apple’s core business has shown itself to be resilient against broader downturns in the market. The other four tech giants have suffered amid slowdowns in digital advertising, e-commerce and PCs. In its September quarter, Apple reported that sales at its most important business—the iPhone—advanced 9.7% from the previous year to $42.6 billion, surpassing analyst estimates.

After a period of aggressive hiring to meet heightened demand for online services during the pandemic, tech companies are now laying off many of those workers. And tech bosses are saying “mea culpa” for the miscalculation. WSJ reporter Dana Mattioli joins host Zoe Thomas to talk through the shift and what it all means for the tech sector going forward.

Apple may face a rougher December quarter, which it is scheduled to report on Feb. 2, as the company encountered manufacturing challenges in China, where strict zero-Covid policies damped much economic activity. Many analysts expect that demand hasn’t subsided for its iPhones and as the company continues to ramp back up manufacturing, demand is anticipated to move to the March quarter.

The company’s business model hasn’t been totally immune to broader slowdowns. Revenue from its services business continued to slow, growing 5% annually to $19.2 billion in the September quarter, shy of the gains posted in recent quarters.

Tom Forte,

senior research analyst at investment bank D.A. Davidson & Co., said he expects Apple to reduce head count, but it might do that quietly through employee attrition—by not replacing workers who leave. The company could move in the direction of making other cuts or adjustments to perks that are common in Silicon Valley. Apple doesn’t offer free lunches to employees on its corporate campus, unlike other big tech companies such as Google and Meta.

Some of the tech giants cutting jobs have spent heavily on projects that are unlikely to turn into strong businesses anytime soon, said Daniel Morgan, a senior portfolio manager at Synovus Trust Co., which counts Apple among its largest holdings. “Both Meta and Google are terribly guilty of that,” he said.

Meta has been pouring billions of dollars into its Reality Labs for its new ambitions in the so-called metaverse. Meta Chief Executive

Mark Zuckerberg

has defended the company’s spending on Reality Labs, suggesting that virtual reality will become an important technological platform.

After announcing the layoffs, Alphabet Chief Executive

Sundar Pichai

said the company had seen dramatic periods of growth during the past two years. “To match and fuel that growth, we hired for a different economic reality than the one we face today,” he wrote in a message to employees on Friday.

Apple also is working on risky future bets, such as an augmented-reality headset due out later this year and a car project whose release date is uncertain, but at a more measured pace.

Write to Aaron Tilley at aaron.tilley@wsj.com

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Business

Google Parent Alphabet to Cut 12,000 Jobs Amid Wave of Tech Layoffs

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Google’s parent company said it would cut its staff by 6% in its largest-ever round of layoffs, extending a retrenchment among technology companies after record pandemic hiring.

Alphabet Inc.

GOOG 5.72%

said the cuts would eliminate roughly 12,000 jobs across different units and regions, though some areas, including recruiting and projects outside of the company’s core businesses, would be more heavily affected.

The layoffs reached as high as the vice president level and affected divisions including cloud computing and Area 120, an internal business incubator that had already faced cuts last year, said people familiar with the matter.

The Google cuts make January the worst month yet in a wave of tech layoffs that began last year, according to estimates from Layoffs.fyi, which tracks media reports and company announcements. This week,

Microsoft Corp.

said it would eliminate 10,000 jobs, the largest layoffs in more than eight years. Online furniture seller

Wayfair Inc.

said it is laying off about 10% of its workforce, and

Unity Software Inc.,

which provides tools for creating videogames and other applications, also cut staff.

Earlier this month,

Amazon.com Inc.

said layoffs would affect more than 18,000 employees and

Salesforce Inc.

said it was laying off 10% of its workforce. Last year,

Meta Platforms Inc.

said it would cut 13% of staff.

Technology companies including Google expanded rapidly during the pandemic as life moved online. Recent cuts have been part of a broader pivot toward protecting profit and cementing the end of a growth-at-all costs era in technology. Google executives have in recent months said the company would be tightening its belt, reflecting a new period of more disciplined and efficient spending. But the company hadn’t announced cuts as deep as those of its Silicon Valley peers. 

Google hired aggressively as demand for its services rose during the health crisis, leading to more than 50% growth in total employee count across Alphabet since the end of 2019. The cuts this week appeared to fall short of the almost 12,800 employees Alphabet added to its roster in the third quarter last year.

“Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today,” Alphabet Chief Executive

Sundar Pichai

wrote in a message to employees sent out Friday and posted on the company’s website.

“I take full responsibility for the decisions that led us here,” Mr. Pichai wrote. The corporate mea culpa for overhiring has become a recurring message in recent months at tech companies as executives realized that some of the hiring they undertook to keep pace with soaring demand for all things digital early in the pandemic left them overstaffed as the business environment soured.

Among the executives who have made such apologies are Salesforce Co-Chief Executive

Marc Benioff,

Meta Platforms CEO

Mark Zuckerberg

and Twitter Inc. co-founder

Jack Dorsey.

The recent headlines about tech layoffs don’t seem to match broader economic indicators, which show a strong job market and a historically low unemployment rate. WSJ’s Gunjan Banerji explains the disconnect. Illustration: Ali Larkin

Alphabet recorded $17.1 billion of operating income in the third quarter last year, an 18.5% decrease from the same period in 2021. Google executives partly blamed a slowdown in revenue growth on the company’s historic performance during the tail end of the pandemic. Alphabet shares rose 4.5% to $97.24 in morning trading Friday.

Alphabet earlier this month said it would cut more than 200 jobs at its Verily Life Sciences healthcare business, accounting for about 15% of the roles at the unit. Before that, some of the last major cuts Google announced were in 2009, when the company said it was reducing the number of jobs in its sales and marketing teams by roughly 200 globally.

Activist hedge fund TCI Fund Management, which had called on Alphabet to cut costs aggressively in November, said Friday the company should go further.

“Management should aim to reduce headcount to around 150,000, which is in line with Alphabet’s headcount at the end of 2021,”

Christopher Hohn,

TCI managing director, said in a letter. “This would require a total headcount reduction in the order of 20%.”

Current and former Google employees said layoffs would likely affect the company’s famously loose and collegial culture, which has been widely imitated in the tech industry.

Google employees have long enjoyed one of the most accommodating environments among large U.S. companies. A letter to potential investors in Google’s 2004 initial public offering said the company provided many unusual benefits, such as washing machines, and would likely add more over time.

As job cuts have accumulated in the tech industry, many employees at Google have pressed executives about the possibility of layoffs at the company. At a companywide meeting in December, Mr. Pichai told employees that the company had tried to “rationalize where we can so that we are set up to better weather the storm regardless of what’s ahead.”

A Google spokesman said that Friday’s cuts would affect not just Google, but also other Alphabet subsidiaries, but didn’t specify at what levels. Alphabet subsidiaries include Verily and the Waymo self-driving-car unit. The spokesman didn’t comment on which specific products or engineering units would be affected.

“Alphabet leadership claims ‘full responsibility’ for this decision, but that is little comfort to the 12,000 workers who are now without jobs,” said Parul Koul, executive chair of the Alphabet Workers Union, in a statement. “This is egregious and unacceptable behavior by a company that made $17 billion dollars in profit last quarter alone.”

Alphabet said it would offer U.S.-based employees two months notice, plus 16 weeks of severance pay, along with two additional weeks for each year an employee being laid off from the nearly 25-year-old company has worked there. In other countries, the company will follow local processes and laws, which sometimes require consultations with employee representatives before workers are laid off.

The company will also offer former employees access to resources to help them with their immigration status, job placement and mental health, the spokesman said. Tech companies in the U.S. often have employees on work visas tied to their employment.

Write to Sam Schechner at Sam.Schechner@wsj.com and Miles Kruppa at miles.kruppa@wsj.com

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Business

T-Mobile Says Hackers Stole Data on About 37 Million Customers

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T-Mobile

TMUS -0.52%

US Inc. said hackers accessed data, including birth dates and billing addresses, for about 37 million of its customers, the second major security lapse at the wireless company in two years.

The company said in a regulatory filing Thursday that it discovered the problem on Jan. 5 and was working with law-enforcement officials and cybersecurity consultants. T-Mobile said it believes the hackers had access to its data since Nov. 25 but that it has since been able to stop the malicious activity.

The cellphone carrier said it is currently notifying affected customers and that it believes the most sensitive types of records—such as credit card numbers, Social Security numbers and account passwords—weren’t compromised. T-Mobile has more than 110 million customers.

The company said its preliminary investigation indicates that data on about 37 million current postpaid and prepaid customer accounts was exposed. The company said hackers may have obtained names, billing addresses, emails, phone numbers, birth dates and account numbers. Information such as the number of lines on the account and plan features could have also been accessed, the company said.

“Some basic customer information (nearly all of which is the type widely available in marketing databases or directories) was obtained,” T-Mobile said in a statement. “No passwords, payment card information, social security numbers, government ID numbers or other financial account information were compromised.”

The company said its systems weren’t breached but someone was improperly obtaining data through an API, or application programming interface, that can provide some customer information. The company said it shut down the activity within 24 hours of discovering it.

The company’s investigation into the incident is ongoing. T-Mobile warned that it could incur significant costs tied to the incident, though it said it doesn’t currently expect a material effect on the company’s operations. The company is set to report fourth-quarter results on Feb. 1.

T-Mobile acknowledged a security lapse in 2021 after personal information regarding more than 50 million of its current, former and prospective customers was found for sale online. T-Mobile later raised its estimate and said about 76.6 million U.S. residents had some sort of records exposed.

A 21-year-old American living in Turkey claimed credit for the 2021 intrusion and said the company’s security practices cleared an easy path for the theft of the data, which included Social Security numbers, birth dates and phone-specific identifiers. T-Mobile’s chief executive later apologized for the failure and said the company would improve its data safeguards.

T-Mobile proposed paying $350 million to settle a class-action lawsuit tied to the 2021 hack. As part of the settlement, the company also pledged to spend $150 million for security technology in 2022 and this year.

Write to Will Feuer at Will.Feuer@wsj.com

Corrections & Amplifications
T-Mobile US Inc. acknowledged a security lapse in 2021. An earlier version of this article incorrectly said it was last year. (Corrected on Jan. 19)

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Business

U.S. Retail Sales Fell 1.1% in December

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Purchases at stores, restaurants and online, declined a seasonally adjusted 1.1% in December from the prior month, the Commerce Department said Wednesday. Sales were also revised lower in November and have fallen three of the past four months. The department seasonally adjusts monthly data to make it comparable over time. On an unadjusted basis, December is typically the peak sales month for the year.

A Federal Reserve report Wednesday found economic activity was relatively flat at the start of the year and businesses are pessimistic about growth in the months ahead. A separate Fed report showed U.S. industrial production slumped in December, led by weakness in manufacturing. A Labor Department report showed inflation was cooling.

Stocks fell Wednesday after the data releases. The S&P 500 shed 1.6%. The Dow Jones Industrial Average was down 1.8%, while the Nasdaq Composite Index lost 1.2%. The yield on the benchmark 10-year Treasury note declined 0.16 percentage point to 3.374%.

The latest data add to signs that the U.S. economy is slowing as the Fed pushes up interest rates to combat inflation. Hiring and wage growth eased in December, U.S. commerce with the rest of the world declined significantly in November, and existing-home sales have fallen for 10 straight months.

S&P Global downgraded its estimate for fourth-quarter economic growth Wednesday by a half percentage point to a 2.3% annual rate. Economists surveyed by The Wall Street Journal this month expect higher interest rates to tip the U.S. economy into a recession in the coming year.

“The lag impact of elevated inflation weighs heavily on U.S. households, it’s very clear that the median American consumer is still reeling from the loss of wages in inflation-adjusted terms,” said

Joseph Brusuelas,

chief economist at RSM US LLP. “We’re moving towards what I would expect to be a mild recession in 2023,” he added.

Federal Reserve Bank of St. Louis President

James Bullard

said Wednesday the central bank should keep on rapidly raising interest rates and supported a half-percentage-point increase at the Jan. 31-Feb. 1 meeting. 

“We want to err on the tighter side to make sure we get the disinflationary process to take hold in the economy,” he said at a Wall Street Journal Live event.

Mr. Bullard’s position is at odds with several of his colleagues, who have suggested that a slower pace of rate increases would be appropriate to allow Fed officials to gauge how their aggressive pace of policy tightening has affected the economy.

Inflation, while still historically high, is showing signs of cooling as demand eases. Unlike many government reports, retail sales aren’t adjusted for inflation. 

Consumer prices advanced 6.5% from a year earlier in December, the sixth straight month of deceleration. The producer-price index, which generally reflects supply conditions in the economy, fell in December from the prior month, and increased at the slowest annual pace since March 2021, the Labor Department said Wednesday.

The National Retail Federation said Wednesday holiday sales were disappointing. The trade group said November and December sales rose 5.3% compared with the same period last year to $936.3 billion. In November, the NRF said it expected holiday sales to rise between 6% and 8%. The NRF figures aren’t adjusted for inflation and exclude fuel, auto and restaurant spending.

Somewhat slower inflation at the end of the year didn’t offset weaker demand, said NRF Chief economist

Jack Kleinhenz.

 Consumers are “hit with higher food prices, they are getting hit with higher service prices and they are having to make choices,” he said. Some spending was likely pulled into October as retailers kicked off deals early this year, he added. Retailers discounted heavily and early to clear excess stock from their shelves and warehouses.

Zach Carney, of Boston, said he has been cutting back on eggs and red meat because the prices are so high. “The price of eggs really jumps out at you,” the 28-year-old publicist said. Instead, he has been stocking up on value packs of chicken and buying more store-brand cereal and olive oil, which cost less than national brands.

In 2021, officials thought high inflation would be temporary. But a year later, it was still near a four-decade high. WSJ’s Jon Hilsenrath explains factors that have kept inflation up longer than expected. Illustration: Jacob Reynolds

The retail sales report showed spending declined in a number of gift-giving categories in December, including at electronics, clothing and department stores, and with online retailers, a category which includes companies such as Amazon.com Inc.

Dining out at bars and restaurants dropped 0.9% in December. Sales of furniture and vehicles, which are sensitive to higher borrowing costs, both fell sharply. The only categories to post slight growth in December were grocery, sporting goods and home improvement stores, as winter storms battered many parts of the U.S.

Some retailers have said the recently completed holiday shopping season turned out to be weaker than expected. Macy’s Inc. warned of softer sales, and Lululemon Athletica Inc. said its profit margins were squeezed as shoppers bought more items on sale.

Many retailers had benefited from surging sales earlier in the pandemic as shoppers stocked up on everything from toilet paper to home electronics and furniture, supported by government stimulus dollars. Those tailwinds have cooled, leaving retailers and product manufactures to confront slower spending in some categories and the longer term dynamics of the industry, such as a gradual shift to online spending.

Apparel retailers are especially exposed to the current pullback in discretionary spending, said Kelly Pedersen, the U.S. retail leader at PwC, a consulting firm. “Buying fashion items at department stores is discretionary,” said Mr. Pedersen. Many apparel retailers are still working to sell through excess inventory and offering deep discounts amid weak demand, he said. 

Department stores, which saw a 6.6% sales drop in December, struggled to boost sales before the pandemic quickly shifted buying habits. In 2020, a string of department stores filed for bankruptcy, including Lord & Taylor, J.C. Penney Co., Neiman Marcus Group Ltd. and Stage Stores Inc. 

Party City Holdco Inc. filed for chapter 11 bankruptcy this week while noting inflationary pressures have hampered customers’ willingness to spend. Bed Bath & Beyond Inc. said this month it plans more layoffs and cost cuts amid falling sales.

The retail sales report offers a partial picture of consumer demand because it doesn’t include spending on many services such as travel, housing and utilities. The Commerce Department will release December household spending figures covering goods and services later this month.

Corporate reports out in February will add to that picture. Walmart Inc., Target Corp. and other large retailers—which sell a variety of goods such as food, clothes and décor—report quarterly earnings next month, which will include December sales.

—Suzanne Kapner and David Harrison contributed to this article.

Write to Harriet Torry at harriet.torry@wsj.com and Sarah Nassauer at Sarah.Nassauer@wsj.com

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Business

Microsoft and Google Will Both Have to Bear AI’s Costs

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Microsoft said Tuesday that it is moving quickly to incorporate artificial-intelligence tools from OpenAI into its products and services. This includes OpenAI’s chatbot called ChatGPT, which launched just over a month ago and has skyrocketed in popularity as users have flocked to the tool, which spits out conversational answers to queries and—much to the chagrin of educators everywhere—can also pen full essays and even poems.

Chief Executive

Satya Nadella

told a Wall Street Journal panel at the World Economic Forum in Davos, Switzerland, that “every product of Microsoft will have some of the same AI capabilities to completely transform the product.”

Microsoft already invested $1 billion in OpenAI and is reportedly looking to put even more into the startup, so its interest in making use of the technology is unsurprising. But the news was also another unwelcome development for Google, whose core search business could be threatened by the question-answering function of technologies such as ChatGPT.

The New York Times reported last month that ChatGPT’s launch Nov. 30 triggered Google’s management to declare a “code red” internally. Microsoft is Google’s largest rival in web search, though its Bing search engine still only accounts for a low single-digit percentage of the global market.  

Shares of Google-parent

Alphabet

GOOG 0.92%

slipped nearly 1% on Tuesday and have fallen nearly 10% since the ChatGPT launch—the worst performance of the big techs and triple the percentage loss of the Nasdaq during that time. Microsoft’s shares rose Tuesday by a fraction while Nvidia, which specializes in artificial-intelligence chips used in data centers by both companies, jumped nearly 5%.

“We see ChatGPT’s prowess and traction with consumers as a near-term threat to Alphabet’s multiple and a boost for Microsoft and Nvidia,” UBS analysts wrote in a recent report. 

ChatGPT indeed seems more than a flash in the pan. Data from Similarweb shows daily visits to the tool’s home page recently surpassed 20 million—nearly double the daily hits the site was generating two weeks after its launch.

But investors might be getting ahead of themselves as far as the impact on Google goes. Not all web queries are created equal—especially ones that will generate revenue through advertising links. ChatGPT specializes in natural-language queries that generate humanlike answers.

Not all of those answers contain correct information, however, and tracing the source of that information is difficult. In a recent report, Bernstein analyst Mark Shmulik said there is “an ocean of difference between a general information search query and a monetizable one,” adding that ChatGPT’s shortcomings on the latter were “glaringly obvious.” 

Google also has the deeply ingrained behavior of the masses to fall back on. The company has powered more than 90% of global internet searches since at least 2009, according to StatCounter. Even Microsoft’s launch of Bing in the middle of that year didn’t really dent Google’s share.  

Ultimately, incorporating AI tools such as ChatGPT could be costly for both companies given the computing horsepower required.

Brian Nowak

of Morgan Stanley estimates that ChatGPT’s cost per query is about seven times as much as the cost to Google for a traditional search query.

That multiple could drop to four times if OpenAI is able to access the lowest price tiers of Microsoft’s Azure cloud service, Mr. Nowak estimates. But that is still quite a gap, and one that is reflective of the costs Microsoft might bear as it works ChatGPT and other OpenAI tools deeper into its products. 

Such pressure would be untimely. Investors are placing greater focus on both companies’ profits as revenue growth is projected to slow considerably this year. Alphabet’s operating margins are expected to come in at 27% this year—down from 2022 but still about 5 percentage points above what it averaged in the three years before the pandemic. Meanwhile, Microsoft is expected to keep its own margins above the 40% line for the third consecutive year—a feat not managed since 1999.

That may explain why Microsoft finally elected to follow other major techs in reducing its headcount. The company said Wednesday morning that it plans to lay off about 10,000 employees, or less than 5% of its workforce. Many expect Google’s parent to make a similar move soon.

How to spend more when investors want to see less going out the door is a question even ChatGPT wouldn’t be able to answer.

ChatGPT, OpenAI’s new artificially intelligent chatbot, can write essays on complex topics. Joanna Stern went back to high school AP Literature for a day to see if she could pass the class using just AI. Photo illustration: Elena Scotti

Write to Dan Gallagher at dan.gallagher@wsj.com

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Business

Emerson Electric Bids to Buy National Instruments for Nearly $7 Billion

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Emerson Electric Co.

EMR -6.82%

has disclosed a nearly $7 billion offer to acquire

National Instruments Corp.

NATI 10.79%

, which it said it has been trying to buy for more than eight months.

Emerson, a St. Louis-based technology and engineering company, said it was offering $53 a share in cash for National Instruments, which it said represents an enterprise value of $7.6 billion. The offer represents a 32% premium over National Instruments’ closing price from last Thursday, the day before the Texas-based equipment and instrumentation company said its board was evaluating strategic alternatives and had already been approached by potential acquirers.

Emerson’s public proposal comes eight months after National Instruments rejected its offer for an acquisition at $48 a share, the company said. Emerson upped its bid to $53 a share in November, but now claims National Instruments has continued to spurn its advances.

National Instruments confirmed Tuesday that it had received Emerson’s offer but said it remains committed to the strategic review process it announced on Friday.

By making the offer public, Emerson is hoping to win over shareholders who until now “have been unaware of this opportunity to realize an immediate cash premium,” Chief Executive

Lal Karsanbhai

said Tuesday in a conference call.

“Emerson urges NI shareholders to engage with their board to ensure this public strategic review process is not merely another delay tactic,” he said.

National Instruments’ shares jumped more than 10% to $52.04 by the close of the Tuesday market. Emerson’s shares meanwhile fell almost 7% to a low of nearly $91 in one of their steepest drops since June 2020, according to Dow Jones Market Data.

Emerson said that picking up National Instruments’ portfolio of electronic test and measurement offerings would bolster its automation business while also adding to its adjusted earnings within the first year. The company isn’t putting any financing conditions on the deal, saying it can fund the transaction with cash on hand and existing lines of credit.

On a call with analysts, the company detailed eight months of snubs from the National Instruments board that started in May, when Emerson said it reached out for an in-person meeting about a potential deal and was instead offered a phone call with management. Emerson sent a formal letter soon after with its all-cash $48-per-share offer, but National Instruments turned it down, the company said.

National Instruments continued to rebuff offers to negotiate privately in the months that followed, Emerson said.

Emerson also noted that National Instruments purchased more than two million of its own shares at an average weighted price of $40.25 during that time. Mr. Karsanbhai criticized the company on Tuesday for launching one of its largest-ever buybacks for a per-share price that was well below Emerson’s offer.

Emerson reached out with its improved offer on Nov. 3 to buy National Instruments for $53 a share, which marked a 45% premium to the company’s share price at market close that day. The National Instruments board responded at the time that it had formed a working group to evaluate the proposal and weigh its strategic options, but otherwise refused to engage with Emerson, Emerson said.

National Instruments said Tuesday that it welcomes Emerson’s participation in its strategic review process but also thinks that negotiating exclusively with the company “would be detrimental to shareholders.”

“NI notes Emerson’s expressed disappointment in this effort to maximize NI shareholder value,” the company said.

Write to Dean Seal at dean.seal@wsj.com

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Business

FTC Plan to Ban Noncompete Clauses Shifts Companies’ Focus

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Businesses and lawyers are beginning to assess what the Federal Trade Commission’s proposed ban of noncompete clauses in employment contracts could mean for worker mobility, wages and the way future compensation agreements are structured. 

While a full or partial ban could expand the pool of potential hires, it also would weaken a tool that employers have come to rely on to retain talent and protect trade secrets and other proprietary information, lawyers say. More companies likely would turn to a patchwork of alternative mechanisms to keep people from leaving and taking valuable information with them, including nondisclosure agreements and employment contracts that reward longevity, they say. 

“Employers have operated with an understanding that they can protect their interests through noncompetes,” said Matthew Durham, a Salt Lake City-based attorney with Dorsey & Whitney LLP who advises companies on employment matters. “What you’re seeing, reflected in the FTC proposal and elsewhere, is a growing hostility to the idea that there should be those kinds of restrictions, and it’s changing the environment that employers have been comfortable with in the last number of years.”

The FTC proposed a ban this month on nearly all noncompetes, saying that the clauses—which typically prohibit workers from moving to a new employer or starting new ventures of their own—hamper competition in the labor market, suppress wages and hold back innovation and entrepreneurship. The proposal came in response to an executive order from President Biden in 2021.

Businesses say they impose noncompete clauses on employees to protect trade secrets and other confidential information, including customer lists and financial data.

The FTC contends that noncompete clauses discourage innovation and entrepreneurship.



Photo:

Eric Lee for The Wall Street Journal

Mr. Durham and others say they believe the FTC may narrow its rule after hearing comments from the public, including employers and business organizations that have already signaled their opposition to the current proposal. The agency could, for example, allow noncompetes for highly compensated workers.

Noncompetes are common in employment contracts for senior employees like software engineers, sales representatives and top executives. Over time, they have been applied to many parts of the U.S. workforce, including some janitors, baristas, schoolteachers and entry-level workers. According to the FTC, one in five U.S. workers is currently subject to a noncompete clause.

Noncompetes are regulated at the state level, and many states have already taken action to limit use of the clauses by, in some cases, forbidding employers from imposing them on people earning under a particular wage threshold or for certain types of workers. 

“The vast majority of people in America can’t afford a lawyer to defend a noncompete case,” said Jonathan Pollard, an attorney in Florida who represents workers whose employers are trying to enforce noncompete clauses. “Just the threat of enforcement is often enough to restrain talent in the labor market.”

The Federal Trade Commission proposed a new ban on noncompete clauses, which the agency says hurts workers and competition. Companies argue they protect trade secrets. WSJ breaks down what a federal ban could mean for workers and businesses. Photo illustration: Jacob Reynolds

Some states, such as California and Oklahoma, hold that the clauses are unenforceable in all or nearly all employment contracts. 

A number of studies suggest noncompetes suppress wages and innovation. A review of Oregon’s 2008 ban on noncompetes for hourly workers found that wages rose an average of 2% to 3%. Another study, examining Hawaii’s 2015 ban on noncompete agreements for high-tech workers, found an 11% increase in job moves and a 4% increase in new-hire salaries.

The clauses restrain not just pay and entrepreneurship, but also professional development, workers and some attorneys say. 

Daniel Bachhuber had worked as a software consultant for years when he decided to take an in-house job in the fall of 2018. His new employer required that he sign a one-year noncompete agreement, which he said was so broad it would have prevented him from practicing his core skills if he were to leave the company or be fired.

Mr. Bachhuber balked. Earlier in his career, he had been laid off a few weeks into a new job, just after his first child was born. If that happened at the new job, he recalled thinking, he would be unable to earn a living for a year. “I’m always thinking, worst case scenario, what kind of downstream protection do I have?” the 35-year-old said. “Even if I was employed just one day, I couldn’t go back to the same clients I had.”

Daniel Bachhuber turned down a job after an employer wouldn’t change a noncompete clause.



Photo:

Mason Trinca for The Wall Street Journal

He consulted a lawyer and tried to renegotiate the contract, hoping to salvage a role that would have expanded his skills and given him a chance to work directly with the chief technology officer on special projects. The company declined to change the noncompete clause and, reluctantly, Mr. Bachhuber turned down the position. 

Employers have other tools to protect information besides noncompete agreements, including nondisclosure agreements, trade secret laws and nonsolicitation agreements, which prohibit workers from poaching customers or employees of their prior firm. 

But those tools generally can only be used after an employee violates the agreement, said Julie Levinson Werner, who represents employers as a partner with law firm Lowenstein Sandler LLP. “Once someone goes to another company, you’re really on the honor system. You have no way to monitor what information is being disclosed or not,” she said.

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Do you think noncompetes should be banned? Why or why not? Join the conversation below.

Observers on both sides say that limitations on the clauses will compel employers to get more creative about how they retain talent, using everything from compensation to career advancement to keep workers engaged and loyal to the company. Some companies use deferred compensation—such as retention bonuses or rolling stock options that vest after, say, three years—to give people incentives to stay.

“Do you get better results with honey or vinegar?” said Ms. Werner. “If you want to motivate people and have them happy to stay, you have to look at compensation, the overall environment, how you treat them.”

The fate of the FTC’s final rule is up in the air. After a 60-day comment period, the commissioners will consider potential changes to the initial proposal and then issue a final rule. That rule will likely be challenged by business groups or individual companies, and courts will determine its trajectory, attorneys say.

Write to Lauren Weber at Lauren.Weber@wsj.com

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Business

Elon Musk, Tesla Poised for Trial Over Tweets Proposing to Take Car Maker Private

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Elon Musk

is headed to court in a securities-fraud trial over tweets from 2018 in which he floated the possibility of taking

Tesla Inc.

private, with in-person jury selection poised to begin Tuesday. 

The class-action case originates with an Aug. 7, 2018 tweet in which the Tesla chief executive said, “Am considering taking Tesla private at $420. Funding secured.” 

An investor,

Glen Littleton,

sued Tesla, Mr. Musk and members of Tesla’s board at the time, alleging that Mr. Musk’s tweets were false and cost investors billions by spurring swings in the prices for Tesla stock, options and bonds. In court filings, Mr. Musk has said he was indeed considering taking Tesla private and believed he had the support of Saudi Arabia’s sovereign-wealth fund to do so. The deal, which would have been valued around $72 billion, never materialized.

U.S. District Judge

Edward Chen,

who is overseeing the San Francisco jury trial that is scheduled to run through Feb. 1, has ruled that Mr. Musk’s tweets about taking the company private weren’t true and that he acted recklessly in making them. 

Questions for the jury include whether Mr. Musk’s tweets were material to investors and whether he knew they were untrue.

The case is unusual in that securities-fraud cases usually resolve before going to trial, such as through a settlement, said

Jill Fisch,

a securities-law professor at the University of Pennsylvania. The defendants in this case face “an uphill battle” in light of the judge’s pretrial decision about the veracity of Mr. Musk’s statements, she said.

Attorneys for the lead plaintiff didn’t respond to a request for comment, nor did an attorney for Tesla, Mr. Musk and the other board members.

Twitter has been in turmoil since Elon Musk took over. To get a sense of what’s going on behind the scenes, The Wall Street Journal spoke with former Tesla and SpaceX employees to better understand how Musk leads companies. Illustration: Ryan Trefes

Mr. Musk is expected to take the stand as early as Wednesday, some two months after he did so in Delaware in a trial over his pay package at Tesla. In 2021, he also appeared before Delaware’s business-law court to defend Tesla’s roughly $2.1 billion 2016 takeover of home-solar company SolarCity Corp. 

Also on the list of possible witnesses are Tesla board chair

Robyn Denholm,

board members

Ira Ehrenpreis,

James Murdoch

and

Kimbal Musk

—the CEO’s brother. The head of investor relations,

Martin Viecha,

also may be called.

SHARE YOUR THOUGHTS

What do you think will be the outcome of the case over Elon Musk’s 2018 Tesla tweet? Join the conversation below.

This week’s trial comes at a busy time for Mr. Musk, who has been scrambling to turn around Twitter Inc. after buying the social-media company last fall in a deal valued at $44 billion. His rocket company SpaceX is pushing for the first orbital launch of a new rocket Mr. Musk wants to use for deep-space missions. 

Tesla, meanwhile, has slashed prices across its vehicle lineup, with some of last week’s cuts in the U.S. nearing 20%, in a bid to juice demand. The company’s stock has fallen roughly 70% since its peak in November 2021, erasing around $850 billion in market value. Mr. Musk’s personal wealth has fallen more than $200 billion in that time, according to the Bloomberg Billionaires Index.

Court proceedings involving Mr. Musk can be feisty. In the SolarCity case, for example, Mr. Musk called opposing counsel a “bad human being.”

Tesla has reduced prices across its vehicle lineup in an effort to boost demand.



Photo:

Jay Janner/USA TODAY NETWORK/Reuters

In advance of this week’s trial, Mr. Musk asked the court to move the trial to Texas on the basis that potential jurors in San Francisco could be biased against him. Judge Chen rejected the request. 

“It isn’t that hard it seems to me to find 15 people,” he said.  

The court requires nine jurors and six alternates to proceed with the case. Roughly 190 potential jurors were asked to fill out questionnaires about their views of Mr. Musk and other issues. The court plans to bring in about 50 of them for further questioning Tuesday. 

Opening arguments could start as early as Tuesday after the jury is selected.

The lead plaintiff is seeking damages for investor losses he alleges stemmed from Mr. Musk’s and Tesla’s statements. Tesla stock closed up 11% the day Mr. Musk initially tweeted about potentially taking Tesla private, later giving back all those gains and falling further as questions emerged about the deal. 

The defendants have said the plaintiff won’t be able to prove to a jury that the statements were materially false. Mr. Musk was considering taking Tesla private, the defendants have said, even if some of his assertions about the deal may not have been literally accurate.

Defendants, in a trial brief, said Mr. Musk believed he had secured backing to take the car maker private from Saudi Arabia’s sovereign-wealth fund, the Public Investment Fund. A lawyer for the defendants said Friday that his team had chosen not to enforce subpoenas calling on fund representatives to testify. The sovereign-wealth fund didn’t respond to a request for comment.

Mr. Musk and Tesla each agreed in 2018 to pay $20 million to settle civil charges brought by the Securities and Exchange Commission over the same tweets. Mr. Musk also agreed to step down as chairman of the company, while remaining CEO. He later said in legal filings that he felt pressured to settle with the SEC. Last year, a federal judge denied Mr. Musk’s request to scrap his settlement.

Write to Rebecca Elliott at rebecca.elliott@wsj.com and Meghan Bobrowsky at meghan.bobrowsky@wsj.com

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World

Biden Administration to Ask Congress to Approve F-16 Sale to Turkey

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The Biden administration is preparing to seek congressional approval for a $20 billion sale of new F-16 jet fighters to Turkey along with a separate sale of next-generation F-35 warplanes to Greece, in what would be among the largest foreign weapons sales in recent years, according to U.S. officials.

Administration officials intend the prospect of the sale to prod Turkey to sign off on Finland and Sweden’s accession to the North Atlantic Treaty Organization, which Ankara has blocked over objections to their ties to Kurdish separatist groups. Congress’s approval of the sale is contingent on Turkey’s acquiescence, administration officials said. The two countries ended decades of neutrality when they decided to join NATO last year in reaction to Russia’s invasion of Ukraine.

The sale to Turkey, which the administration has been considering for more than a year, is larger than expected. It includes 40 new aircraft and kits to overhaul 79 of Turkey’s existing F-16 fleet, according to officials familiar with the proposals.

Congressional notification of the deal will roughly coincide with a visit to Washington next week by Turkey’s Foreign Minister

Mevlut Cavusoglu.

The sale to Turkey also includes more than 900 air-to-air missiles and 800 bombs, one of the officials said.

Turkish President Recep Tayyip Erdogan has faced U.S. pressure to approve NATO expansion.



Photo:

adem altan/Agence France-Presse/Getty Images

The separate sale to Greece, which was requested by the Greek government in June 2022, includes at least 30 new F-35s. The F-35 Joint Strike Fighter is the U.S.’s most advanced jet fighter. While officials described the timing of the notifications for both Turkey and Greece as coincidental, it could quell protests from Athens over the F-16 sale if its request is also granted. Greece and Turkey are historic regional rivals and a sale to Turkey alone would likely draw swift condemnation from Athens.

The potential sale of the aircraft could have far-reaching implications for Washington’s efforts to shore up ties with a pair of NATO allies amid the Western response to Russia’s assault on Ukraine.

A State Department spokesman declined to comment on potential arms transfers as a matter of policy until and unless they are formally notified to Congress. Congress has never successfully blocked a foreign arms sale requested by the White House.

The proposed deal with Turkey comes at a moment of tension in U.S.-Turkish relations, with Washington also attempting to convince President Recep

Tayyip Erdogan

to do more to enforce sanctions on Russia and to approve the entry of Finland and Sweden into NATO.

The proposal also sets up a possible showdown with some congressional leaders who have vowed to oppose weapons sales to Turkey. Sen.

Bob Menendez,

a Democrat from New Jersey who is the chairman of the Senate Foreign Relations Committee, has said he wouldn’t approve any F-16 sale to Turkey, citing human-rights concerns.

In recent months, Mr. Erdogan has also threatened to launch a new military incursion against Kurdish militants in Syria. Last month a Turkish court also convicted the mayor of Istanbul, a popular opponent of Mr. Erdogan, of insulting public officials in what human rights groups said was part of a crackdown on the Turkish opposition. The Turkish government says its courts are independent.

Under U.S. arms-export laws, Congress will have 30 days to review the deal. If Congress wants to block the deal it must pass a joint resolution of disapproval. Congress can also pass legislation to block or modify a sale at any time until the delivery.

The Biden administration is looking to sell at least 30 new F-35 jet fighters to Greece.



Photo:

robert atanasovski/Agence France-Presse/Getty Images

U.S. officials say they are encouraging Mr. Erdogan to drop his opposition to Finland and Sweden joining NATO. One official characterized the F-16s as the “carrot on a stick” to get Turkey to agree.

This, officials said, could ease opposition to the sale among some members of Congress. Officials within the State Department have argued for months that the expansion was imperative to NATO’s collective security. However, officials expect that while the Greece package could sail through Congress, the F-16s may be delayed over some members’ reluctance to embolden Ankara with the additional firepower.

Mr. Erdogan first threatened to veto the two countries’ entrance over their ties to Kurdish militant groups in Iraq and Syria. Turkey has fought a slow-burning war with Kurdish armed groups for decades in a conflict that has left tens of thousands dead.

NATO leaders say that Finland and Sweden have addressed Turkey’s concerns, upholding an agreement signed last year that called for both countries to evaluate Turkish extradition requests and drop restrictions on arms sales to Ankara.

Turkish officials say that Sweden hasn’t done enough to uphold its obligations to Turkey, citing what they say is continuing activity by the militant Kurdistan Workers’ Party in Sweden. The Turkish government this week summoned Sweden’s ambassador over a demonstration in Stockholm in which protesters hung a puppet of Mr. Erdogan by its feet. The Turkish president’s hard line against Sweden has broad support within Turkey, including among opposition parties, who have long opposed what they see as a permissive approach to Kurdish militant groups in Europe.

The timing of a vote on NATO expansion in the Turkish parliament will also depend on Turkey’s national election this year, in which Mr. Erdogan faces a close race amid public discontent over the country’s struggling economy.

The Turkish Ministry of Foreign Affairs didn’t respond to a request for comment.

The Biden administration remains cautiously optimistic that Turkey will eventually come around on Finland and Sweden. U.S. officials said last year that there would be no quid pro quo for Turkey’s approval of the NATO expansion, and said that the timing of the F-16 sale was dependent on the administration’s own internal process to complete the deal.

The proposed sales also come amid heightened tensions between Turkey and Greece, two longtime adversaries who have traded threats over the past year in the eastern Mediterranean.

Turkey was originally a participant in the U.S.’s cutting-edge F-35 program but was expelled after Mr. Erdogan approved the purchase of Russia’s S-400 air defense system. The U.S. government said the Russian weapons system could potentially hack the F-35.

Biden administration officials have argued that selling F-16s to Turkey could help restore ties with the country, which maintains the second-largest army in NATO.

Under Mr. Erdogan, Turkey has played an important role in the Ukraine crisis, facilitating negotiations over prisoner exchanges and helping to broker an agreement that allowed Ukraine to resume its exports of grain through Black Sea ports. Mr. Erdogan’s close relationship with Russia’s President

Vladimir Putin

has also raised concerns in Washington, with scrutiny of inflows of Russian money to Turkey, including oligarch assets.

Finland and Sweden have formally applied to join NATO, but Turkey has threatened to block them from joining. WSJ’s Shelby Holliday explains why Turkish President Recep Tayyip Erdogan sees the expansion as a threat to Turkey’s national security. (Video first published in May 2022). Photo composite: Sebastian Vega

—William Mauldin contributed to this article.

Write to Jared Malsin at jared.malsin@wsj.com and Vivian Salama at vivian.salama@wsj.com

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Business

Alphabet Unit Verily to Trim More Than 200 Jobs

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Verily Life Sciences, a healthcare unit of

Alphabet Inc.,

GOOG 3.38%

is laying off more than 200 employees as part of a broader reorganization, the first major staff reductions to hit Google’s parent following a wave of layoffs at other technology companies.

The cuts will affect about 15% of roles at Verily, which will discontinue work on a medical software program called Verily Value Suite and several early-stage products, CEO Stephen Gillett said in an email to employees Wednesday. Verily has more than 1,600 employees.

Verily oversees a portfolio of healthcare projects largely focused on applying data and technology to patient treatments, including a virtual diabetes clinic and an online program for connecting research participants to clinical studies. 

“We are making changes that refine our strategy, prioritize our product portfolio and simplify our operating model,” Mr. Gillett wrote in the email. “We will advance fewer initiatives with greater resources.”

Originally known as Google Life Sciences, Verily is one of the largest businesses other than Google under the Alphabet umbrella, part of a group of companies known as “Other Bets.” Alphabet had 186,779 employees at the end of September last year, according to company filings.

The robotics software company Intrinsic, another unit in Alphabet’s Other Bets, also said on Wednesday it would let go of 40 employees. A spokesman said the “decision was made in light of shifts in prioritization and our longer-term strategic direction.”

Verily has recently looked to pare back a once-sprawling collection of projects spanning insurance to mosquito breeding. Last year, the company hired McKinsey & Co. and Innosight to do consulting work, The Wall Street Journal reported.

After a period of aggressive hiring to meet heightened demand for online services during the pandemic, tech companies are now laying off many of those workers. And tech bosses are saying “mea culpa” for the miscalculation. WSJ reporter Dana Mattioli joins host Zoe Thomas to talk through the shift and what it all means for the tech sector going forward.

The reorganization is a sign of the continued difficulties facing big tech companies trying to crack the healthcare industry.

David Feinberg,

the head of an ambitious health-focused group at Google, left the company in 2021 to become CEO of the healthcare technology company Cerner Corp.

In the email to employees, Mr. Gillett said Verily would largely focus on products related to research and care, while concentrating more decisions in a central leadership team rather than individual groups.

Mr. Gillett took over as Verily CEO this month, succeeding the well-known geneticist

Andy Conrad,

who moved to executive chairman.

“As we move into Verily’s next chapter, we are doubling down on our purpose, with the goal to ultimately be operating in all areas of precision health,” Mr. Gillett wrote to employees on Wednesday. “We will do this by building the data and evidence backbone that closes the gap between research and care.”

Google’s peers have cut jobs recently in response to worsening economic conditions and a decline in online advertising. Last week,

Amazon.com Inc.

announced layoffs that will affect more than 18,000 employees, the most of any tech company in the past year.

Tech Layoffs Across the Industry: Amazon, Salesforce and More Cut Staff

At a companywide meeting in December, Google CEO

Sundar Pichai

said he couldn’t make any forward looking commitments in response to questions about layoffs. Google has tried to “rationalize where we can so that we are set up to better weather the storm regardless of what’s ahead,” he added.

Activist investor TCI Fund Management called on Alphabet in November to reduce losses in Other Bets such as Verily, writing in a letter to Mr. Pichai that the company had too many employees.

Alphabet’s Other Bets recorded $1.6 billion in operating losses from $209 million in revenue during the third quarter last year, mostly from the sale of health technology and internet services. 

Verily said in September it received $1 billion in funding from Alphabet and other investors, without naming the backers. The private-equity firm Silver Lake, Singaporean fund Temasek Holdings and Ontario Teachers’ Pension Plan previously invested in the company.

Write to Miles Kruppa at miles.kruppa@wsj.com

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