In the future, the issue of competition protection needs to be more refined and rationalized.
Author | Lian Ran
Editors | Zhang Peng, Zheng Xuan
In the workplace, non-compete agreements have always been controversial. They aim to protect a company's trade secrets and customer relationships but are often misused, restricting employees' freedom to grow. However, under the leadership of Lina Khan at the Federal Trade Commission (FTC), a transformative effort on non-compete agreements is underway.
As the chair of the FTC, Lina Khan is not only an antitrust advocate but has also initiated antitrust investigations and lawsuits against tech giants. Shortly after her appointment, she led antitrust lawsuits against Facebook's acquisitions of Instagram and WhatsApp, followed by actions against companies like Meta and Amazon.
Now, she has championed a major initiative for workers by announcing that the FTC will universally prohibit all employees (including senior managers) from signing new non-compete agreements, effective April 23, local time.
This bold move by the FTC is expected to have numerous positive impacts: a 2.7% increase in the rate of new business establishments, resulting in an estimated 8,500 new companies each year; an average annual increase of 17,000 to 29,000 patents over the next decade, with an annual growth rate of patents between 11-19%; and an additional average annual income boost of $524 (approximately 3,796 RMB) for employees over the next ten years, injecting more vitality into both innovation and the labor market.
The prohibition of non-compete agreements by the FTC has sparked extensive interest internationally and domestically. Will this lead to a reevaluation and reform of non-compete agreements within China?
Despite the necessity of non-compete agreements in protecting company interests, their restrictive impact on employees cannot be overlooked. If domestic competition protection could evolve towards greater refinement and rationality, a more balanced solution between employee freedom and business opportunity protection might be found, potentially unleashing more entrepreneurial energy and innovative vigor.
The aim of non-compete agreements was originally to protect a company's trade secrets and maintain relationships with its clients, dating back centuries. However, over time, many employers have twisted the original intent of these agreements. They often formulate overly broad clauses that may not be strictly enforced. This practice has long contradicted the original purpose of non-compete agreements.
According to FTC Chair Lina Khan, on one hand, non-compete clauses have kept wages low and stifled innovation, draining economic vitality. On the other, by abolishing these clauses, it is estimated that over 8,500 new startups will be established each year. The final rule prohibiting non-compete clauses by the FTC ensures that workers are free to pursue new job opportunities, start new businesses, or bring new ideas to the market, she stated.
Additionally, the implementation of this final rule is expected to encourage the establishment of new businesses, with a projected annual growth rate of 2.7%. It is also anticipated that worker incomes will increase, with an average annual boost of $524 per worker. Over the next decade, this regulation is expected to significantly reduce healthcare costs by up to $194 billion while also positively impacting innovation, with an average annual increase of 17,000 to 29,000 new patents anticipated.
This rule was initially proposed in January 2023, and during the 90-day public comment period, the FTC received over 26,000 comments about the proposed rule, with over 25,000 in support of the FTC's proposed prohibition of non-compete clauses. This shows the public's long-standing grievance against non-compete clauses.
The FTC's rule also outlines alternatives to non-compete clauses, such as trade secret laws and confidenti ality agreements. These alternatives can help employers protect their proprietary information and other sensitive data without restricting workers' freedom.
Article from WeChat Official Account: Geek Park (ID: geekpark), Author: Lian Ran