table of contents
I. Introduction
II. Definitions and Background
3. Main Controversy and Discussion
1. Basis of authorization
Second, the substance
3. The current state of regulation and implementation
Proposed alternative rules
Fourth, the current situation in China
V. Conclusion
Summary
In January 2023, the U.S. Federal Trade Commission (FTC) introduced a draft administrative rule that would almost completely prohibit "non-compete" agreements that have been in place in the labor market for almost all years in the name of violating the order of fair competition. This proposal has caused considerable controversy and discussion in the international community. Since it involves at least the competition and balance of the Constitution, administrative law, anti-unfair competition law (especially the protection of trade secrets), anti-monopoly law, labor contract law and applicable law, and how to balance the interests of employers and the employment opportunities and prospects of countless workers to change jobs, the relevant developments in the future will inevitably have a far-reaching impact on the global industrial chain and labor population flow.
This article intends to sort out and analyze the content of the new regulations (draft) and the various issues behind them, especially the possible impact on competition in the labor, product and service markets, and the protection of trade secrets. This article also examines whether there are other viable alternatives or compromise options if the non-compete agreement is scrapped. This paper also examines the limited research information in China and proposes that the same or similar problems are already being faced in China. However, due to the fact that the relevant research and analysis is still quite limited, and the judicial practice needs to be continuously enriched, it is hoped that the introduction and analysis of foreign development in this article will attract more attention and discussion, so that the future labor market and innovation environment can develop more vigorously and soundly.
keyword
Non-compete agreements, Federal Trade Commission (US), non-delegation rule, material issues rule, "unavoidable disclosure" rule, non-solicitation agreements, non-disclosure agreements
I. Introduction
After a long period of deliberation, the U.S. Federal Trade Commission (FTC) officially proposed a draft rule called "Non-Competition Clause Rule" on January 5, 2023, which intends to completely abolish the long-standing "non-compete agreement" or "non-compete agreement" (hereinafter referred to as "non-compete agreement") in the market through administrative regulations. [1] This move has caused a thousand waves, not only caused huge controversy in the United States, but also caused international discussions because it is bound to impact countless multinational companies and international industrial chains.
At the legal level alone, this measure has at least affected the competition and balance of the Constitution, administrative law, anti-unfair competition law (especially the protection of trade secrets), anti-monopoly law, labor contract law and applicable law. Not only that, but at the social and economic level, it has affected countless structural and fundamental issues such as the relationship between employers and their employees, the choice of employee resignation, the prospect of innovation and R&D, and the competitiveness of the market economy. As the application of this type of agreement is not only more and more extensive, but also globalized, it has become a common operation mode or standard arrangement for enterprises in many countries and places, especially in the high-tech field, almost all employees must sign the document before formal employment. In other words, "non-compete agreements" have become an international business Xi, and the regulation or even abolition of such agreements will inevitably affect the interaction between all industrial chains and all links in them. The resulting problems are almost identical or very similar regardless of geography or country. For example, whether such an agreement is really illegal, whether the measure is also illegal (at least procedurally), what should be the criteria for determining it, what is the short-, medium- and long-term impact on the labour market, and if the agreement is illegal, are there other viable alternatives, etc.
This article first reviews the definition and background of a "non-compete agreement", especially the relevant developments in the United States in recent years, including the specific content of the proposed provisions of the Trade Commission. The latter includes empirical research on the possible impact on competition in the labor, product and service markets, and the impact of the existence and abolition of "non-compete agreements" on the protection of trade secrets, especially the "unavoidable disclosure" established through judicial practice in common law systems Whether the law will be abolished, which will make workers (employees) subject to more confidentiality obligations, and will have a knock-on effect on their willingness to change jobs and the movement of the workforce, as well as the possible impact on innovation and research and development? Finally, it examines the limited research information in China and proposes that the same or similar problems have been faced. In the ever-changing environment of the market, it is necessary to promote the innovation and development of science and technology, and at the same time must take into account the stable balance with the relevant labor and employment market.
II. Definitions and Background
"Non-compete agreement" refers to the employment contract or clauses between the employer or the employer (any enterprise, institution, unit or even individual studio) and the employee (or employee) restricting or prohibiting the employee from working for any other enterprise, institution, unit or individual that competes with the original employer after the termination of the employment relationship or resignation, or from establishing a competitive business with the original employer. [2]
Generally, such restrictions or prohibitions should be within a certain period of time or territory (otherwise they may be invalid or even illegal), and some regulations require employers to pay reasonable compensation. In the past, it was often assumed that such agreements or clauses were designed for a small number of people who needed access to or control the company's commercial or technical secrets and senior management, but a number of recent empirical studies of the U.S. market have consistently shown that non-compete agreements have become a common practice in various industries, and are often fixed and standard in countless employment contracts, and even ordinary employees must sign and agree to them. For example, in the United States, media revealed that Jimmy John's Gourmet Sandwiches, a well-known restaurant chain, had required all employees, even those receiving minimum wage, to sign a non-compete agreement. The results led to investigations in several states. Eventually a settlement was reached, agreeing to drop the clause and the lawsuit against a number of former employees. [3]
In the United States, on April 15, 2016, President Barack H. Obama signed an executive order titled "Strengthening Competition and Consumer and Worker Awareness to Support the Sustainable U.S. Economy"[4], which requires federal agencies to propose options on how to remove anticompetitive practices in labor or the job market and how to provide workers with the information they need to make informed choices. The White House then released a report titled "Non-compete Agreements: Use, Potential Issues, and State-by-State Analysis." [5] The vast majority of them are critical of non-compete agreements, citing survey data showing that only 24% of employees know (or hold) some trade or technical secrets, and less than half of all employees who have signed a non-compete agreement hold trade or technical secrets. In addition, 15 per cent of the many workers who have signed such agreements do not have a bachelor's degree and 14 per cent earn less than $40,000 a year. This shows that there is not a specific correlation between the signing of most non-compete agreements and the protection of their trade or technical secrets by manufacturers, and it does not fully explain why non-compete agreements are currently so widely used. [6] The report concludes that while non-compete agreements play an important role in protecting business interests and promoting innovation, and make employers more willing to invest resources in training their workers, they also increase the burden on workers, consumers, and the economy as a whole to a considerable extent, including limiting the growth of real wages and competition in the labor market. [7]
The report comes at the end of Obama's term, and with the presidential and congressional elections looming and the two parties facing off, it is difficult to push for any substantive policy at the federal level on this highly contentious matter. However, the U.S. Department of Justice (DOJ) and the Trade Commission have issued a "joint guidance" for human resources departments to provide "advice" on how such agreements may trigger antitrust investigations. [8] While formally this is a non-legal document, it is the first clear signal that the enforcement of federal antitrust and anti-unfair competition laws is prepared to take more action on this issue.
His successor, Donald J. Trump, had no interest in continuing Obama's policy, and the issue came to a near standstill. After President Joseph R. Biden took office, he was determined to start making and enforcing the rules again in order to win the support of the working class and strengthen the Democratic Party's voter base. On July 9, 2021, he first issued Executive Order 14036 (hereinafter referred to as the "Order") entitled "Promoting U.S. Economic Competition", which put forward 72 initiatives in eight areas, including agriculture, health care, finance, transportation, labor market, Internet services, high technology, and alcoholic beverage trade, and comprehensively outlined the specific strategies and policies to be implemented during his tenure. [9]
Article 1 of the Order begins by stating that "concentration of undertakings strengthens the power of employers and makes it more difficult for workers to negotiate higher wages or better working conditions." Powerful firms require their workers to sign non-compete agreements, limiting the latter's ability to change jobs. [10] As a result, the Order requires the federal government to adopt a "whole-of-government approach" to address the issue of excessive corporate concentration and whether it involves illegal monopolies and unfair competition, including the enactment of pro-competition regulations and the repeal of unnecessary or restrictive regulations that inhibit competition and market access. [11]
The Order further expressly obliges[12] the Chairman of the Commission to formulate relevant provisions in accordance with the provisions conferred by law to curb the improper use of non-compete agreements resulting in restrictions on the movement of workers. [13]
On 15 November 2022, after a new round of internal research and discussion, the Trade Commission proposed a draft of the Non-Compete Clause Rule (the "Draft Rules") and sought feedback from all sectors of the community. [14] Its main contents include:
1. In principle, it is a comprehensive prohibition. Any employee who enters, attempts to enter into, or maintains a non-compete agreement, or who does not have a good faith basis to good believe that it and the employee can be bound by a non-compete clause, constitutes unfair competition.
2. Broad and general definition. In addition to the direct non-compete or restriction, any clause or agreement that would have the effect of prohibiting the employee from seeking or accepting other employment opportunities is still a de facto non-compete and is also prohibited. The meaning and scope of "worker" includes regular employees (full-time or part-time), temporary hires or contractors, Xi and volunteers.
3. Individual notification obligations. If an employer enters into a non-compete agreement with its employee before the compliance date, it must revoke the agreement before the compliance date begins, and shall give separate notice of the termination of the clause (or agreement) in written or electronic form in advance, and shall include both current and former employees.
4. Sale-of-business exception. The foregoing prohibition does not apply to the sale or disposition of a business owner with a non-compete clause (or agreement) attached to the sale or disposition of the business, provided that the seller is the substantial owner of the business at the time of the contract, and is still subject to federal antitrust or other relevant regulations. According to the definition drafted in the Draft Rules, "substantial owner", "comparable member" and "comparable partner" refer to ownership of at least 25% of a particular undertaking. [15]
5. Overriding state regulations. Once in force, this federal administrative regulation has a superior effect over state statutes (known as "preemption"). Any existing laws, regulations, orders, or judicial interpretations in each state that are inconsistent with this provision shall be subject to this provision (i.e., the statutes of each state that are inconsistent shall be deemed null and void).
6. Effective Date of Provisions. It is intended to take effect on the 180th day of the day following the issuance of the final rule. [16]
Five members of the FTC disagreed on the rule, with one Republican dissenting member (see more on that later). Influential civil society organizations, such as the American Bar Association (ABA) and the American Intellectual Property Law Association (AIPLA), are also trying to consolidate their internal divergent views in order to provide feedback on the proposed new rule.
3. Main Controversy and Discussion
1. Basis of authorization
The formulation of this rule first raises at least three procedural questions: (i) whether the Commission has the authority to regulate this issue (whether it has a legislative mandate from Congress, and even if it does, does it still violate the "Nondelegation Doctrine" that maintains the system of checks and balances in the constitutional regime)? (3) Even if the Trade Commission had such powers, it would be able to cross the threshold of "major issues", and is there sufficient empirical conclusions or evidence to support such a regulation?
(1) The right to formulate rules
The Federal Trade Commission Act (FTC Act) was enacted by the U.S. Congress in 1914 to strengthen antitrust enforcement and set up a special enforcement agency. [17] Article 5 was amended by Congress in 1938 to expressly prohibit unfair competition and unfair or fraudulent acts or practices in the commercial field, and to empower the Commission to make administrative regulations and to have enforcement jurisdiction over almost all natural and legal persons (with a few exceptions). [18] This indicates that Congress's legislative and rule-making mandates cover both the conduct of transactions between competitors and the protection of consumers, and that the former can regulate specific entire industry sectors, which can be in the form of rules or guides.
Where consumer protection issues or matters (i.e. unfair or fraudulent acts or practices, including non-compete or prohibitions), the Commission is required to enact general "trade regulations" for specific industries or areas of trade on its own in accordance with the "delegated legislation" conferred by section 18 of the Commission Act rules, or TRRs), but the procedures are so complex and cumbersome that they far exceed the requirements of Section 553 of the Federal Administrative Procedure Act (APA) for the development of general administrative provisions, and can cause considerable consumption of human and material resources and time.
In addition, due to the fact that the past history has had a serious negative impact on its internal operations and external credibility, the Trade Commission has not followed this route in the past 40 years to formulate rules, but has instead expressed the Trade Commission's position and attitude towards specific issues through administrative enforcement or judicial litigation on individual cases, and to show which specific acts will be regarded as constituting unfair competition (if the parties are not satisfied, they can naturally appeal, and the court is still the final adjudicator). [19]
However, this approach was reversed again after the incumbent chair, Lina M. Khan, took office on June 15, 2021. In an effort to fast-track the aforementioned Executive Order 14036, Promoting U.S. Economic Competition, she first amended the rules of practice for the Commission's rule-making process shortly after taking office, discarding the long-standing requirement to ensure impartiality and independence by appointing the Commission's Chief Administrative Law The presiding over hearings has been changed back to the chairman, and the previous provisions that the deacon appointed by the presiding officer is responsible for managing the entire hearing process have also been removed, such as how the person can present and how to present evidence, etc., all of which are centralized and under the control of the Trade Commission. [20] On the surface, these are mere procedural regulations, but in reality they are a return to the pre-1980 institutional design, with the Commission, and in particular its chairman, in controlling the agenda, direction and schedule of the hearings. [21] However, the current temporal and spatial context is very different from that of 40 years ago, and these initiatives are bound to face various challenges.
(2) The law of non-authorization
The first challenge is whether the enabling legislative provision of section 18 of the Commission on Trade violates the "non-delegation rule" established by the Federal Supreme Court to maintain the constitutional system,[22] which is intended to limit or prevent Congress from unduly ceding or relinquishing legislative power that it should have exercised on its own, leaving it to another branch of government that should not have legislative power in its place. [23] The Supreme Court, with the exception of the 1930s when President Franklin D. Roosevelt Jr. ruled invalid on the basis that the main legal authority for his "New Deal" was invalidated, largely based on respect for the professional division of labor in the executive branch or agency, and led to the rapid growth of various administrative regulations. [24] But the court's conservative justices are now in the majority,[25] and a strict scrutiny stance is taken on such broad legislative mandates, examining the need for rule-making mandates. [26] This means that the new rules introduced by the Commission will be challenged from the outset on the issue of the source basis.
(3) The law of major issues
In connection with the "non-delegation rule", the Supreme Court of the United States made it clear for the first time in 2022 in West Virginia v. Federal Environmental Protection Agency that the executive branch has the authority to make its own administrative rules on matters not expressly authorized by the law depends on whether it is a "major question." [27] This refers to a situation in which Congress is intended to be transferred to a particular executive branch or agency that is of great economic, social or political significance (VAST significance), the intent should be clearly stated in the relevant law, not a laissez-faire exercise of discretion by the executive branch or agency relying solely on obscure legal provisions, i.e., the executive branch must make rules clear that the legislature of Congress specifically authorizes the agency to rule-making on a particular issue. However, the court did not give what criteria should be relied upon to determine whether it constitutes a "material issue", whether there is a clear congressional legislative authority, and did not touch on how Congress authorized administrative law enforcement agencies to do unforeseen things at the time of enacting a law. [28] Therefore, it cannot be ruled out that there may be more uncertainty and controversy in the future.
Proponents of such power (or at least putative authority) include consumer advocacy groups, workers' organizations, and liberal scholars (also known as progressives). They argued that although the labor market was involved, it was entirely in line with the basic purpose of the establishment of the Trade Commission in 1914 to regulate non-compete agreements from the perspective of anti-unfair competition, and that there was nothing wrong with that, otherwise the government would lose its value. [29] Moreover, the U.S. Court of Appeals for the District of Columbia Circuit (U.S. Appeals). Court of Appeals for the District of Columbia, as demonstrated in 1974 in the case of National Refineries Association v. Trade Commission, that the Commission does have the power to make substantive "trade rules" on such issues. [30]
Opponents are dominated by academics from the U.S. Chamber of Commerce, large corporations, and conservatives. [31] They argue that one of the main purposes of Congress's 1975 amendment to the ACTA Act was to respond to the federal appeals court ruling that on the one hand, the Commission exercised or regulates "unfair or deceptive acts or practices in or affecting." commerce, or UDAP for short, provides a complex set of procedural provisions (e.g., it must be determined that the act or operation to be regulated is already widely used in the industry or market, must be given prior notice, public hearings are held, interested parties are allowed to exercise limited cross examination, etc.), but on the other hand, it does not touch on how the Commission is to be formulated and defined in accordance with the Act unfair methods of competition (UMC) (equivalent to the concept of "unfair competition", mainly to protect the legal interests of enterprises). This means that Congress deliberately leaves the latter blank and is unwilling to give full and unreserved endorsement to the latter rule-making power on behalf of the Trade Commission, but rather leaves it to the judiciary to examine and consider each case on a case-by-case basis. [32]
Some scholars are skeptical that the Commission is skeptical that it wants to rely solely on a nearly 50-year-old Court of Appeals for the Federal Circuit as the basis for exercising its rule-making powers today, or at least that the foundation is too fragile to be denied in the event of a new judicial challenge. [33] This is because even if the same court were to retry the case today, it is likely that different conclusions will be reached according to the current understanding and interpretation of administrative regulations, such as the above-mentioned rule of non-authorization and major issues, and the lazy exercise of power by administrative agencies. [34] Another former member of the Trade Commission pointed out that since the establishment of the Federal Trade Commission in 1914, it has only issued one administrative regulation based on the authorization of antitrust or unfair competition (UMC) in 1967, but not only has it never been really implemented, but it was withdrawn (repealed) in 1994, and the provision is still essentially within the scope of consumer protection (price discrimination), which also shows that in the anti-monopoly and anti-unfair competition section, the Trade Commission actually has no experience and practice in formulating and implementing administrative regulations. [35] In addition, such as the lack of clarity in the letter of the legislative mandate, the fact that such issues have traditionally been the sole jurisdiction of the states, and that there has never been any precedent (including judicial decisions or the Commission's own administrative rulings) indicating that the non-compete agreement constitutes unfair competition, suggests that the Commission's proposed new rules may have entered deep waters that have not been carefully explored and examined in the past, and must be handled with caution. [36]
Christine S. Wilson, the only Republican member of the Board at the time, devoted considerable space to the dissenting argument to the above-mentioned issues of legality and procedure, and expected that the Commission's rule-making authority would inevitably be challenged by the judiciary (she resigned in February 2023). She argues that the proposal procedurally abandons the practice that has passed the judicial test since the 1930s, and attempts to achieve multiple different goals at the same time without specific criteria (such as the regulation of the labor market) in the name of anti-unfair competition, which means that it will run a great risk of repeating the mistakes of President Roosevelt's "New Deal" when the main legislative provisions were rejected by the courts. [37]
(4) Preemptive effect
Another issue, related to the "rule of major issues", which has also caused considerable controversy, is whether a federal executive can establish rules (which may not adequately reflect public opinion conceptually) in a so-called "pre-emptive" position to override and supersede the relevant state laws passed by state legislatures, or at least to exclude inconsistent state law provisions. Although formally regarded as a procedural matter, it is clear that this can have a decisive impact on any relevant substantive provisions;
The Federal Supreme Court has not directly answered this question after making the "rule of major issues" the criterion for determining executive legislative authority. However, in a recent decision, the court has stated that when an executive rule clearly intrudes into areas traditionally regulated by the states, the court will not support the federal executive branch in making rules through vague legislation and "preemption" unless Congress makes it clear in exceedingly clear language that it will significantly alter the balance between the federal and state and the government's control of private property In order to overwhelm the state's existing provisions, the Court emphasized that the federal executive should not do anything to achieve a noble goal. [38]
Second, the substance
Traditionally, the Council's regulation of unfair competition (legislation or judicial decision) is related to a specific product or service, and its scope of application is at best limited to a specific industry. However, the proposed rules restricting or prohibiting non-compete are a step forward that covers the labor market in all industries.
(1) Competition in the labor market
In the Council's view, the aggregate effect of the current widespread use of non-compete agreements in the market has unduly interfered with competition in the labour market, as it limits the possibility for people to change jobs, deprives them of opportunities to improve themselves in the relevant workplace environment, and undermines society's goal of making the best use of one's talents. [39] While it is true that individual agreements ostensibly only involve the relationship between a particular employer and an employee, the impact may be limited, but when such agreements are widely used in the labor market as a whole and become the norm, the combined or cumulative effect of a large number of agreements will have an impact on the employee's job transfer opportunities, not only for the employees who have signed the agreement, but also on the mobility of the entire labor market. From a competitive point of view, employees will have no choice but to stay in the existing positions and salary levels (at most limited salary increases), which will also block the opportunity for different employers and workers to seek the best match with each other, and will not be able to make the best use of their talents. [40]
Based on some available empirical evidence, the Council speculates that about one-fifth of the U.S. workforce (or 30 million people) are currently subject to some kind of non-compete agreement. [41] Although some researchers believe that the use of such protocols is still expanding, there is no consistent empirical data to support this view. [42]
On the other hand, 37 per cent of workers bound by such agreements did not know whether the agreements they had signed were actually enforceable, and 11 per cent were clearly misled or told the wrong information that the agreement would be enforceable in their state when it was not, or that it would not be enforceable but in fact the opposite was true. [43] Moreover, only 10.1% of the employees surveyed said that the non-compete agreement they signed was the result of negotiation between the two parties. This means that ninety percent of the agreements are completely unilateral and standardized operations of enterprises, and workers have little room for negotiation and bargaining chips.
As for the impact of non-compete agreements on wage returns, based on the results of seven empirical surveys, the Trade Commission shows that once such agreements or clauses have a restraining effect on the entire employment market, which should be through continuous circulation and interaction to find the best match, it will have the consequence of wage stagnation or substantial reduction, that is, anti-competitive effects. Not only that, but there are also data showing that in states that recognize and are willing to enforce such agreements, the higher the degree or scope of enforcement, the more significant the effect on wage stagnation or reduction, and the impact is not limited to employees who sign non-compete agreements or terms, but also employees who do not sign them. [44] However, the Commission made a particular distinction between the mere use of such agreements and the subsequent practical implementation of such agreements. Although some studies have shown that as long as such agreements are used, even if they have not yet reached the stage of implementation, they may lead to salary reductions, but they have not been accepted by the Trade Commission because there may be some confounding factors, and it is difficult to form a specific direction between the degree of use of non-compete or prohibition and the impact on employees' income. [45] For example, for an enterprise that must rely on trade secret protection to operate, the employer may adopt a policy of paying a high proportion of employees and signing a non-compete agreement at the same time, and it is difficult to determine the relationship between the two at this time.
In addition to the relationship between the parties to such a contract and those around them who are not contracted, an important factor to consider is the impact on job creation. Theoretically, if a non-compete agreement is used as a guarantee, the employer should be more willing to enhance the value of individual jobs, such as providing more resources to engage in staff training, updating the required software, hardware and equipment at any time, etc., which also means hiring more people to support and enhance the value of their products or services. However, the relevant empirical research cited by the Commission has not been able to confirm this hypothesis. [46]
(2) Competition for products and services
After referring to and citing the results of nine empirical surveys from 2006 to 2022, the majority opinion of the Trade Commission is that non-compete agreements have also caused negative disruption to competition in the relevant product and service markets, and are mainly attributed to the decline in voluntary labor mobility caused by non-compete agreements. [47] However, the Commission also stressed that the reduction in voluntary labour mobility does not in itself have a direct anti-competitive effect on products and services, but should be understood as a driver of anti-competitive development. For example, research shows that in the field of health insurance, the stronger the enforcement of non-compete agreements, the more it is associated with the increase in consumer prices and the concentration of related operators, because the decline in worker mobility makes it difficult for many new ventures that could compete with established enterprises to emerge or cease to exist. [49] This means that if other or potential employers are interested in hiring (especially more experienced staff), unless they are willing to pay a high cost to "redeem" the workers who are bound by the agreement or even their related team members, they can only "retreat" to avoid litigation disputes, but this also creates a substantial blockade to the access to human resources, undermines the competitive order of the relevant market, and has a negative impact on economic development, including inhibiting the flow of information and innovative development. [50]
As for the impact of non-compete agreements on consumer prices, there is no empirical research to show how there is a direct correlation between the two, but due to the phenomenon of increasing concentration of business operators, it is theoretically likely to lead to the problem of restricting competition, including undue monopoly of prices. [51] The Commission's preliminary conclusion is therefore that such agreements pose at least a potentially negative impact on consumer prices and must therefore be banned. [52] While acknowledging that a blanket ban would be costly, the Commission nevertheless considered it necessary. The majority of the Trade Commission also recognized that the main supporting argument in favor of a non-compete agreement is that only under the protection of such an agreement can a company be willing to invest more human, material and time resources, including sharing relevant trade secrets with employees. And once the proposed rule is passed and implemented, this part should be the biggest enforcement cost, and it will also be the largest investment loss for each enterprise. [53]
(3) The impact on the protection of trade secrets
(1) Dual-track jurisdiction system
The protection of trade secrets in the United States has traditionally been under the jurisdiction of each state, but since 1996, the federal government has also passed legislation to protect trade secrets involving transstate nature, so there is currently a binary or dual parallel protection mechanism.
At the state level, 48 states, all trusteeships, including the District of Columbia and Puerto Rico, have adopted the Uniform Trade Secrets Act (UTSA), while the remaining two states currently have separate legislation to protect trade secrets. [54] The Uniform Trade Secrets Law (UCCA) is a compilation of common law judicial decisions on liability for misappropriation of trade secrets, and then codifying them into a culture to clarify the relevant rules to be followed, including the definition of trade secrets and the right to private civil prosecution on the aggrieved party (trade secret holder), such as requesting the court to issue an injunction against a situation where the theft of trade secrets has occurred or has not yet occurred but there is a threat of such a situation. [55]
At the federal level, Congress earlier enacted the Economic Espionage Act of 1996 1996, EEA), for the first time, established federal criminal jurisdiction over trade secret theft, but the prosecutor must decide whether to prosecute, the person has no direct right of action, and must involve commercial (or industrial) theft on behalf of a foreign government or legal entity, with a maximum penalty of 15 years in prison and a fine of $500,000 for each offender, and up to $10 million for a legal entity (i.e., a federal felony). [56] Congress later enacted the Defend Trade Secrets Acts of 2016 (DTSA), which established the federal government's federal civil jurisdiction over trade secret theft, following the rules of the Uniform Trade Secrets Act, clarifying parties' rights of action and relief for damages, injunctions, and litigation costs (including attorneys' fees), and further authorizing courts to prevent the dissemination or proliferation of specific trade secrets in "exceptional circumstances" (extraordinary circumstances) to order the seizure of the property involved in the case (ex parte orders). [57]
and (2) the "unavoidable disclosure" rule
A highly controversial issue, which is closely related to the performance or enforcement of non-compete agreements, is whether the so-called "inevitable disclosure doctrine" will be overturned by the Commission's proposed near-total ban on such agreements when actual infringement has not yet occurred.
This rule can be traced back at least to a 1902 decision of the U.S. Court of Appeals for the Seventh Circuit (one says a 1919 decision of the New York State Court of Appeals),[58] It means that if the original employer can prove that the departing employee will inevitably disclose or use the trade secrets of the original employer when working for the new employer, the court may issue a temporary or permanent injunction against the departing employee from serving with the new employer for a certain period of time and permanently prohibit the employee from divulging the trade secrets of the original employer. [59]
Compared with traditional pre-litigation preservation measures, this rule has several characteristics:
1) Time – the original employer can request the court to issue an injunction before the employee starts working in the new employer, and it is not subject to whether there is a non-compete agreement between the original employer and the employee;
2) Purpose – to prevent the occurrence of a threatened misappropriation [60], i.e., to a certain extent of threat to the infringement of trade secrets;
3) Proof – It is not necessary to prove that the infringement has actually occurred, but only that there is a probably possibility that irreparable harm has occurred, although the courts are divided as to whether the presumption of irreparable harm will result from the "unavoidable disclosure" once the plaintiff can prove it;[61]
4) No negligence – in principle, there is no need to consider whether the employee or the new employer has the subjective intention to infringe on the trade secrets of the original employer (although some courts have different opinions on this);
5) Scope - In principle, it is limited to senior management or technical personnel, and is not limited to ordinary employees.
In an indicative decision, the court specifically pointed out that the mere fact that the former worker joined a competitor to perform work of a similar nature or hold the same or similar position does not automatically constitute "unavoidable disclosure". [62]
In an influential decision, the U.S. District Court for the Southern District of New York said that the controversial nature of this rule is that even if the parties have not previously entered into any contract, it is tantamount to asking the court to recognize and enforce a non-compete agreement created by the court unilaterally through a pre-trial injunction. [63] The Court therefore emphasized that "the law of inevitable disclosure is intended to tread an extremely narrow channel in areas that are not popular with the judiciary." In the absence of evidence of actual theft by a particular worker, this rule can only be applied in the most exceptional circumstances. As to whether a pre-trial injunction should be issued, it is necessary to consider: (1) whether the two employers involved in the case are direct competitors providing the same or very similar products or services, (2) whether the new position of a particular employee is so similar to the original position that it can be reasonably expected that it will be almost impossible to dispense with the trade secrets of the original employer in order to fulfill the requirements of the new position, and (3) the relevant trade secrets are of high value to both employers. Other factors relevant to individual specific cases, such as the nature and characteristics of the industry to which it belongs and the commercial secret, must also be taken into account. ”[64]
The relationship between "threat of infringement" and "unavoidable disclosure" is still debated. Some judicial decisions hold that the two are two sides of the same coin, and there is no substantive difference (the doctrine of substantial equivalence),[65] while others hold that although there is a causal relationship between the two, the theories are completely different and do not overlap (mutual disagreement),[66] and other courts have held that "unavoidable disclosure" is an important method or link in establishing the "threat of infringement" and is a sufficient condition for the latter (causal association theory). [67]
In view of the differences and controversies, state courts differ on whether or not to accept the rule. [68] Some courts rejected this rule altogether on the grounds that it might adversely affect the mobility of workers;[69] In view of the impact of such a ban on the parties and the market, some courts adopted a strict review attitude, requiring the original employer to provide a higher level of evidence for "unavoidable" disclosure and harm, and even requiring evidence that the defendant had "bad faith", which constituted "vicious job hopping". [70] Some courts have held that as long as the original employer can prove that "unavoidable disclosure" can be obtained, an injunction should be granted as a matter of course. [71]
At the federal level, the Trade Secrets Defense Act, on the one hand, follows the practice and experience of state legal systems and authorizes courts to issue pre-trial injunctions to the extent they deem reasonable to prevent any actual or threatened theft of trade secrets, but it also makes it clear that such injunctions do not prevent any person or worker from entering into employment contracts with others, and that the limits in the injunctions must be determined separately on the basis of evidence of the threat of infringement in individual cases, and cannot be set solely on the basis of information known to the parties. [72] Thus, federal legislation takes a compromise approach to the application of the unavoidable disclosure rule, allowing the court to issue a pre-trial injunction only if it does not affect the worker's subsequent employment and the extent of the restriction must be reasonable. [73]
At the state level, "unavoidable disclosure" as an equitable relief The rule only applies to cases where it is difficult for the original employer to prove that the original employer has factually infringed its trade secrets, so it is changed to prove that the defendant has a threat of infringement (which is inevitable and imminent) in order to obtain a judicial pre-trial injunction, such as if the plaintiff can prove the factual infringement (e.g., the former employee has handed over the specific trade secrets of the original employer to the new employer although he has not yet taken up his new position), the Uniform Trade Secrets Law There are no restrictions on the content of injunctions, which are entirely left to the discretion of the courts, but at the federal level, the Defence of Trade Secrets Act restricts the content of pre-trial injunctions in both cases of threat of infringement or factual infringement.
At present, there are only sporadic district court decisions in federal judicial practice, and there is no consensus on the application of this rule, after all, many federal courts will refer to the practice of the state courts where they are located as a guide, which is destined to continue to cause disagreements and disputes. [74]
It is against this backdrop that the proposed rules of the Trade Commission have been introduced, which has aroused the suspicions of the American Chamber of Commerce (which mainly represents the employer) and R&D institutions, believing that the Trade Commission is not only ultra vires, but also wants to take advantage of this to completely abolish the "unavoidable disclosure" rule. [75] After all, for many companies, a non-compete agreement is essentially an insurance policy for the protection of their trade secrets, and if the insurance is suddenly deemed invalid, and assuming that such a policy can pass judicial review, is there a viable alternative, given that it is often very difficult to prove trade secret infringement (especially when it involves technical know-how, strategic planning, or past failures? Otherwise, it will inevitably have a great impact on the entire market.
(3) No solicitation and non-disclosure agreements
There are two frequently cited alternatives: a non-solicitation agreement and a confidential agreement, also often referred to as a non-disclosure agreement (NDA). The question is, can these two agreements really replace the non-compete agreement entirely?
As the name suggests, a "non-solicitation agreement" refers to a contract between an employer and its employee that prohibits any employee from soliciting other partners, employees (former colleagues) and/or customers (including patients in the medical system) of the original employer after leaving the company, either for their own benefit or that of the new employer. [76] This type of contract or agreement is usually common in the service industry, and the former employer can only prohibit its former employee from engaging in so-called "cornering" after leaving the company through such an arrangement, but it cannot prevent the former employee from returning to compete with the original employer (and even encouraging such competition to a certain extent in terms of legislative policy). [77] There are currently differing attitudes among states as to whether such agreements are valid and enforceable. Some are more inclined to protect the interests of the employer (the employer), while others are inclined to protect the employee (the employee). In jurisdictions that are primarily designed to protect the interests of employees, such as California, such agreements can easily be invalidated ab initio by a court unless they involve the protection of a company's trade secrets. [78] In jurisdictions that are more supportive of employers (e.g., Texas), even in the absence of such an agreement between employer and employee, the solicitation of former employees after leaving office may still constitute a breach of fiduciary duty to the original employer. [79]
In any case, even if the principle is quite concise (examining whether the specific content and substantive meaning of the former employee's contact with his colleagues after leaving the company constitutes a "solicitation"), when confronted with actual cases, the situation is often still in a "gray area", which is not clear and difficult to deal with. If the results are not clear or ideal, it is easy for the market to be confused and cause more problems. For example, if a former employee uses social networks such as LinkedIn or Facebook to send information about his or her new job and work to a former colleague, to what extent will it be considered a solicitation and constitute a breach of contract?[80]
Related to this, is it possible for two or more employers to directly agree with each other not to solicit or poach each other's staff (i.e., "no poaching agreement"))? In one notable case, Adobe Systems, Inc., Apple, Inc., Google, Inc., Intel Corporation, and Intuit, Inc. and six companies, including Pixar Animation Studio, have reached five bilateral agreements to ensure that all of each other's employees have nowhere to "change jobs" and that there is no brain drain. These companies began implementing these agreements in 2005 and continued until they were investigated in 2009, resulting in more than 64,000 people affected at that time. The U.S. Department of Justice's Antitrust Division filed a formal lawsuit in 2010, alleging that the agreements violated Section 1 of the Sherman Act and constituted a restriction on competition. Five other Lucasfilm employees filed a civil class action lawsuit in federal district court (eight co-defendants, adding Lucasfilm and eBay). Both cases ended in settlements – no monetary damages or penalties were awarded in the Federal Department of Justice's investigation and prosecution, but specific matters were clarified for a number of businesses to do, do and not do,[81] and in the civil class action section, Oldobie, Apple, Google, and Intel agreed to pay $415 million together, and the other four paid $20 million. [82]
The use of a confidentiality or non-disclosure agreement is an agreement between two or more parties that one party agrees to share its trade secrets (whether managerial or technical) or other sensitive information that is considered to be of high value, and the other party undertakes to keep the information confidential for a certain period (or indefinitely), including not to disclose, share or disclose its contents in part or in whole in any form. [83] In addition to the employer and its employees, the parties to the agreement may also include contractors engaged in specific work, third parties engaged in cooperation or collaboration on specific projects, visitors to negotiate with the employer, or two legal entities (whether companies or partnerships) engaged in some kind of collaboration.
In the case of an employment relationship, it is often signed by only the employee, and only the party who signs the agreement is bound by the content (or terms) of the agreement, so it is also called a "non-mutual agreement" or "unilateral agreement". In general, a confidentiality or non-disclosure agreement should contain at least the following elements:
1) Parties – including specifying all applicable parties (whether natural or legal) and the identities they represent, and the drafting party should also indicate the correct ownership of the trade secrets or other information it intends to protect if it involves a more complex organizational framework of the enterprise. However, it is often precisely because of the lack of clarity in this basic link that once a dispute arises, it becomes a prerequisite that the validity of the agreement itself becomes a prerequisite that must be dealt with, and in vain increases the consumption of resources and time.
2) Definition of confidential information – It is important to specify what exactly is meant to protect trade secret information or other confidential matters, but this is often the most difficult part because it involves how the information that needs to be protected can be defined without disclosing the specific contents. Some companies have adopted a "lump" approach, for example, by regulating all information belonging to the R&D sector to be treated as confidential, but it remains to be seen whether such a broad definition can pass judicial review. Common objects include trade secrets, customer information, financial information, market intelligence and operational information.
3) Exclusion - In some cases, it is a reverse specification to state in the agreement what does not constitute information that needs to be kept confidential, or to restrict the sharing of specific information with whom (such as subcontracted third parties), how and scope of use, etc.
4) Applicable period – Information that needs to be kept confidential will generally have some kind of time limit, after all, its original value will usually be considerably diminished after a period of time. While the terms of an agreement may require the other party to maintain confidentiality "permanently", if a dispute arises, not only the time limit, but also any clause that is too broad, ambiguous or disproportionate will usually be subject to strict scrutiny by the court and risk being ruled invalid. [84]
Due to the increasing use of non-disclosure agreements by enterprises in recent years, which is also considered to be too superficial, there are currently multiple legislative restrictions. [85] For example, Article 8 of the Federal National Industrial Relations Act explicitly lists the types of conduct that constitute "unfair labor practices". [86] At least 16 other states have passed legislation against nondisclosure agreements. For example, Maine legislated in 2022 to prohibit employers from restricting workers from reporting wrongdoing at their workplaces to law enforcement in nondisclosure agreements. [87] Oregon passed similar legislation and gave workers the right to sue employers for breaches of regulations. [88] Illinois also provides special safeguards for whistleblowers involved in breach of nondisclosure agreements. [89]
In order to seek the greatest protection for themselves, many employers often require their employees to sign all three agreements, namely non-competition, prohibition of solicitation and confidentiality, that is, the non-compete agreement is the largest protective umbrella, and then the other two agreements are used as backup and reinforcement, and in case the former is judged invalid, there is also a backup agreement that can be supplemented. If the Commission's proposed rules were to be adopted in their current version, such a strategic layout would be highly risky. Although the scope of the proposed rules is ostensibly limited to non-compete agreements, and the Commission considers that the prohibition of solicitation and secret agreements may be an alternative, as mentioned above, the scope of the proposed prohibition in the draft rules includes "de facto" non-compete agreements, i.e. any contractual clause that produces the same or similar effect as such an agreement may be regarded as illegal and invalid, meaning that any restrictive covenant that is deemed to be too broad may be problematic. [90]
This clearly adds considerable uncertainty to how non-solicitation and non-disclosure agreements should be viewed, and suggests that if the proposed rules come into effect as they are in their current version, almost all employers currently using these agreements will have to revisit whether they want to revise their wording. In any case, from the employer's standpoint, they are concerned that, assuming that the non-compete agreement can no longer be used in the future, will the corresponding solicitation and non-disclosure agreement be invalidated?
The Commission's proposed rules do not provide a complete and unambiguous response to whether non-solicitation and confidentiality agreements may also constitute an unlaw. On the one hand, the Commission stated in the notes accompanying the proposed rule that "the definition of a non-compete clause should generally not include other types of restrictive agreements – such as confidentiality agreements and non-solicitation agreements with clients or customers – as such clauses would not normally prevent an employee from seeking or accepting other employment opportunities after the termination of his employment relationship with his or her former employer"[91], but on the other hand, it stated that "when the scope and operation of a restrictive clause is unusually wide broad), it will still be considered a non-compete clause. [92] It is clear that the extent to which it has reached an "unusually widespread" level can only be determined on the basis of the specific facts of each case, and it is impossible to generalize, at least for the foreseeable future. This leaves there always be a certain degree of uncertainty as to whether these two types of agreements are still valid. Moreover, the Commission's note also mentions things such as "no-business agreements" (i.e., prohibiting former workers from doing business with current or former customers or consumers of the employer), "no-recruiting agreements" (i.e., prohibiting former workers from hiring or "poaching" from their former employers), and "liquidated damages". provisions, i.e., a specific amount or fee that the former employee should pay to the original employer when engaging in specific acts, including "training-repayment agreements", that is, if the former employee leaves the company before a certain period or date, he agrees to compensate the employer for all training expenses of the employee). (sometimes) may be deemed to fall within the definition and scope of the non-compete agreement in the Commission's proposed rules because it is too broad, and should therefore be prohibited or invalid. [93] This again means that the validity of a clause must be determined solely on the facts of each case, which naturally leads to greater uncertainty. For example, if the "liquidated damages clause" includes a requirement for the employee to return the "signing bonus" or "retention bonus", equity grants, and other incentive payments paid by the employer at the beginning of the employment, does it fall within the scope of the prohibited agreement?
Therefore, in order to avoid invalidity, the scope of the non-solicitation and confidentiality agreement can only be limited and clarified as much as possible when drafting the non-solicitation and confidentiality agreement. Even so, in addition to legal disputes, this uncertainty will certainly form a persistent shadow on the psychological level, causing employers to always feel that their own protection is not in place (whether this is true or not), and they will always be in a certain uneasy atmosphere. It is still unclear and difficult to assess how such psychological and emotional effects will affect the employer's future investment in employees, but it will eventually form a potential concern for the healthy and sustainable development of the relationship between labor and management in the future, which may also have a contagious impact on the overall innovation environment and ability performance in the future.
3. The current state of regulation and implementation
According to the survey statistics of the Trade Commission, all states in the United States, including the capital city of Columbia, currently give a certain degree of restriction to non-compete agreements, whether they are legislative or judicial, whether they are recognized or enforced, and they are not completely laissez-faire. The states of California, North Dakota, and Oklahoma have taken the most stringent stance, treating non-compete agreements with almost all workers as void with a few exceptions (such as the sale of a seller's original sole proprietorship, partnership, or corporation). [94] Of the jurisdictions that have limited recognition and enforcement of such agreements, 11 states and the District of Columbia only recognize agreements above a certain pay scale, while the remaining 47 states have mostly legislated to prohibit people in certain professions from entering into such agreements, and the vast majority even explicitly prohibit them directly for specific professions (especially physicians, because of the significant social good). [95]
The Council's survey further shows that many states have enacted or amended non-compete agreements in recent years. For example, the 12 pieces of legislation that use workers' wages or similar factors as the basis for permissibility have all been enacted in the last 10 years. Some have amended the original relatively laissez-faire legislation to add additional requirements for employers. For example, five states, Oregon, Maine, Massachusetts, New Hampshire, and Washington, now require employers to sign agreements with prior notice as a requirement or precondition for accepting employment, and not to be forced to sign agreements without considering opportunities or options. [96] Oregon and Massachusetts also passed so-called "garden leave" or gardening leave, which mandates employers to continue to pay workers their normal wages between the time they formally leave their job and the expiration of their non-compete agreement (i.e., "leave without pay"). [97] In addition, the state of Washington expressly states that the agreement may not be valid for more than 18 months, and in Oregon and Massachusetts, it cannot exceed one year. [98]
As to whether or under what circumstances a non-compete agreement entered into by an employee who is not covered by these legislation can be performed (or enforced) is dealt with on a case-by-case basis under the common law of each state. Although the state courts may not be completely consistent in their determinations and opinions on specific cases, they all use the reasonableness inquiry of the agreement involved in the case as the basis for their judgments, and tend to interpret it narrowly, that is, if there is any obscurity in the agreement, it will try to interpret it in a direction that is unfavorable to the drafting party. [99] Specifically, the vast majority of courts will apply the test provided in the Restatement (Second) of Contracts: an otherwise valid transaction (or contract) relationship that is accompanied by an undertaking to avoid competition constitutes an unreasonably (or unjustly) restraint on trade if one of the following two conditions is met of trade) – (1) the restriction exceeds what is necessary to protect the legitimate interests of the promisee, or (2) causes hardship to the promisee more than the needs of the promisee and is likely to cause loss or harm to the public. [100] In the case of a non-compete agreement, the "pledgee" refers to the employer or the employer, and the "pledgee" refers to the employee.
Under this test, the employer must first prove that it has a certain legitimate interest ("legal interest"). As mentioned earlier, trade secrets are clearly a legal interest recognized by various jurisdictions, including states, the District of Columbia, and the Trusteeship. Some states also recognize confidential information outside of the scope of statutory trade secrets and the employer's specific investment interest (e.g., investment in special training). [101] For example, New York and others may also consider whether the original employer and the employee have a "unique service relationship" (regardless of whether the individual employee has irreplaceable or irreplaceable characteristics, but focuses on the relationship between the employee and the business of the original employer) to decide whether to issue an injunction prohibiting the employee from "moving ship" to a new employer. [102] However, courts generally do not regard the "maintenance of competitive advantage" as a legal interest to be protected.
If the employer can pass the first proof requirement, and then need to prove that the agreement involved in the case is tailored to that particular legal interest. In this regard, the court will usually have to examine whether the restrictions or prohibitions (or the individual acts enumerated, including acts and omissions), the period and geographical scope of the terms of the agreement have exceeded the scope of the scope required to protect the legal interests of the employer. [103] If the court weighs the balance between the terms of the agreement and finds that the terms of the agreement will bring or meet the needs of the employer and do not exceed the hardship caused to the employee or the possible harm to the public, the relevant clause may be ruled invalid, or it may be ruled unenforceable even though it is still valid on the surface. [104] In assessing the "hardship caused to the employee", the court must determine whether the non-compete agreement is unreasonable based on the personal circumstances of the particular employee. Therefore, if the enforcement of the agreement would result in the destruction of the worker's only livelihood skill, the court will likely rule that the agreement is invalid. [105] As to whether there is a risk of harm to the public, the court's main consideration is whether the enforcement of the agreement will result in a particular community being deprived of or experiencing a shortage of necessary goods and services,[106] and since the case is on a case-by-case basis, the key to the "likely harm to the public" should be to look at the loss of the services or contributions of individual workers, rather than whether the aggregate or cumulative effect of the performance of all agreements will have an anti-competitive impact on the relevant market.
In any case, when dealing with disputes involving non-compete restrictions or prohibitions, courts often encounter "gray areas", and ultimately have to rely on the burden of evidence, weigh them on a case-by-case basis, and comprehensively consider them from three dimensions: legality, reasonableness, and necessity.
Proposed alternative rules
The Commission is well aware that its proposed draft rules to virtually eradicate non-compete agreements are fraught with controversy and uncertainty in terms of the basis of authorization, procedural and substantive issues, and will face huge judicial challenges in the future. Therefore, a number of possible alternatives were proposed in the accompanying notes to the proposed rule in case the advance of the case was blocked.
The alternative is based on two considerations: (i) whether a near-total prohibition should be adopted or a presumption of unlawfulness should be rebutted, and (ii) should all employment relationships or employees be applied as a whole, or should separate exemptions be set for different types of workers or employment relationships?[107]. ]
The Commission's preliminary determination and concern is that if it only takes a "half-step" approach and adopts the path of presumption of illegality, it will only promote cognitive confusion between employers and employees, because whether a non-compete agreement can be used becomes a practice criterion that depends entirely on an abstract legal test principle without any real concrete basis. For example, it is difficult for an employer to recognize, let alone assess, whether a non-compete agreement will not cause harm to the relevant employee, product or service in the market, even if it is clear or expected to cause a certain degree of harm, does it still contain some competitive interest that can outweigh these infringements, or is it necessary to enter into such an agreement to protect some of the employer's commercial interests?[108]
On the other hand, the Trade Commission also recognizes that in view of the complexity of the market, it is more flexible to adopt the "presumption of illegality", which can be more "tailored to the circumstances of the case" and avoid various potential problems caused by "one size fits all". At present, one of the main criticisms from the outside world is that on the one hand, there is indeed an abuse of non-compete agreements and needs to be rectified, but the proposed draft rules of the Trade Commission are too radical and want to "one size fits all", in a simple and crude way, but ignore the various possible scenarios in between, especially trying to deprive the employer and the employee of the option to negotiate a contract that is in the common interests of each other. [109]
In this regard, the preliminary view of the majority opinion of the Trade Commission is that if the "presumption of illegality" approach is adopted, it will mean that the Commission will have to enact stricter and more restrictive testing requirements than the existing state common law, otherwise it will be difficult to produce better remedies for the anti-competitive consequences of such agreements. One possible solution proposed by the Trade Commission is the so-called "quick look test" similar to that used in judicial practice under antitrust law. This means that if the court has a fairly high probability of being able to detect the anti-competitive effect, that is, it does not need to apply the anti-monopoly "reasonable analysis" (or "rule of reason") in which it is generally necessary to conduct a detailed assessment of the relevant market, market structure and market power and other issues according to the facts of each case, but can directly and exclusively deduce that specific behaviors that restrict trade may cause harm to competition based on its experience of the market based on its Xi knowledge of the economy （abbreviated rule-of-reason analysis））。 [110]
The Commission also indicated that it was not excluded that the final provision could also be treated differently, i.e., for those who met certain elements or circumstances, those that were directly prohibited and others were "presumed to be illegal" (e.g., technical personnel) or laissez-faire (e.g., corporate executives); [111] However, the Commission argues that a blanket ban on such agreements could ultimately boost the incomes of the entire group of workers, including those who are already high-ranking or highly skilled.
Taken together, once the threshold has been set, the possible alternative regulations include at least four permutations:
(1) Agreements below the threshold are all prohibited, and above them are "presumed to be illegal";
(2) Agreements below the threshold are all prohibited, and laissez-faire above them is not regulated;
(3) Comprehensively adopt the "presumption of illegality";
(4) Agreements below the threshold are "presumed to be illegal", and laissez-faire above them are not regulated.
Although the Commission had indicated that it was not prepared to recommend any alternatives in the proposal, it had indicated that it would be open to feedback from all quarters. In addition, as the Council's preliminary investigation did not find any exploitation or coercion similar to that of other working classes when entering into agreements between employers and their senior executives, the Council would like to hear feedback from the public as to whether there should be a very different policy for executives entering into such agreements, including how to define what constitutes an "executive" and what criteria should be adopted if they are to be treated differently, such as whether "presumption of illegality" should be adopted Or no restrictions at all. [112]
The Commission has also proposed two potential complementary regulations as alternatives: a disclosure rule and a reporting rule. The former requires the employer to disclose to its employees in advance that it will be bound by the non-compete agreement once hired, and not only that, but it may also need to further explain and explain the content of the agreement to the employee, including the rights and obligations of both parties, and the procedures for handling disputes in the event of a dispute, etc., while the latter requires the employer to declare the content of the agreement to the Trade Commission for follow-up and supervision by the Trade Commission, and this compliance requirement may also change the employer's assessment and make it more reluctant to use the non-compete agreement. However, the Commission's preliminary judgment still holds that if these two requirements are introduced, it may still be difficult to effectively address the matters that should be of most concern, that is, the additive effect of the non-compete agreement has already had a considerable negative and anti-competitive impact on the entire labor and employment market, and such a requirement will also add a considerable cost burden to all employers and the Trade Commission who are ready to use the non-compete agreement. [113]
Fourth, the current situation in China
As mentioned above, non-compete agreement disputes are not confined to individual countries or regions, but have long become a common issue that is difficult to avoid around the world. [114] According to a survey of U.S. judicial practice, more than 85% of all trade secret infringement cases, whether federal or state, have been defendants in all trade secret infringement cases since 1950 as current or former employees or partners of enterprises. [115] If we observe the statistics from 2016 to 2020, there are about 1,400 trade secret infringement lawsuits every year, of which 67% of the disputes are eventually settled through mediation or conciliation between the parties, and if the litigation continues, the vast majority of the cases will be supported by the court, and pre-trial injunction (about 54%) and permanent injunction (permanent) will be granted according to the request of the plaintiff (employer). injunction (about 74%) or temporary restraining order (TRO) (about 65%), if it goes to trial, it usually takes at least a year and a half to obtain the court's first decision. [116] In other words, the vast majority of trade secret infringement disputes in the United States are related to employees "changing jobs", and in serious cases, even important R&D or operation teams "collectively change jobs", led by specific executives to the so-called "defection with guns" to the camp of competitors. Since judicial proceedings require rigorous evidence, are time-consuming and resource-intensive, and are often not urgent, the employer will want to provide itself with an additional layer of protection by entering into a non-compete agreement, believing that it can give the original employer more leverage to facilitate the early resolution of the dispute, so as to stop the bleeding and heal as soon as possible, so as to avoid greater subsequent harm due to the transfer or leakage of trade secrets.
In China, a survey of relevant judicial practice by the Beijing High People's Court shows that from 2013 to 2017, the number of trade secret infringement cases was still very low relative to the total number of intellectual property dispute cases, with only 338 cases, but 281 of them, or 83% of all cases, were disputes over alleged infringement by former workers. [117] In particular, in 210 of these cases (i.e., 65%), the plaintiff lost the case, mainly because it failed to prove that the content (or object) of the information it asserted and should be protected met the statutory requirements for trade secret protection. [118] In any event, such a situation would reinforce the employer's tendency to provide maximum protection to itself through non-compete, non-solicitation, and non-disclosure agreements with third parties related to its employees or operations.
Reports support this inference. For example, according to a survey by the Rule of Law Daily, the use of non-compete agreements in China has become alienated and overflowing, which has had a negative impact on the flow of talent and has triggered thousands of lawsuits (the number of non-prosecutions or private settlements is bound to be even higher), many of which are not for executives, but for grassroots employees. Not only that, but many non-compete agreements are either quite vague and general, or they are very broad in scope, regardless of position, and anyone must sign them as soon as they join the company. [119] It can be seen that the various issues raised by non-compete agreements are almost identical, regardless of whether they are Chinese or foreign. Although the non-compete agreement was originally born out of the employer's need for trade secret protection, its development has presented a huge contrast: on the one hand, it has caused countless disputes and litigation disputes, but on the other hand, there are very few lawsuits that actually involve infringement of trade secrets. In any case, the non-compete agreement has become a "sword of Damocles" hanging over the head of the backbone of the enterprise, and a major "killer" that restricts the flow of talent in the industry. [120]
In the face of various disputes over non-compete agreements, the current handling is based on Articles 23 and 24 of the Labor Contract Law[121], the relevant provisions of the Regulations for the Implementation of the Labor Contract Law, and the Interpretation (IV) of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases[122]. Although the law expressly limits the object of the non-compete agreement to the senior management personnel, senior technical personnel and other personnel with confidentiality obligations of the enterprise, and the last category should be limited to those who do have confidentiality obligations, in practice, enterprises often transform almost all employees from ordinary employees to "other personnel with confidentiality obligations", and then still require (or disguised coercion or even compulsion) to sign the contract, which is tantamount to making this restriction null and void, and also calling into question the reasonableness of the non-compete agreement. In addition, many small, medium and micro enterprises do not have the need to restrict non-competition, but various agreements still appear, and it is difficult to prove the non-compete behavior of employees, which induces disputes among employees claiming non-compete compensation, which also calls into question the necessity of non-compete agreements. [123]
In terms of time limit, the second paragraph of Article 24 of the current Labor Contract Law clearly stipulates that "it shall not exceed two years". This means that in the event of a dispute in the future, if the term of the non-compete agreement exceeds two years, it may be difficult to obtain the support of the court for the excess part. However, it may be debatable whether such a rigid regulation is reasonable and whether it can appropriately respond to the actual needs of different industries, different technical fields or trade secrets. For example, in the field of biotechnology or new drug development, it often takes more than ten years to obtain marketing authorization through a series of strict approvals. It usually involves not only invention patents, but also various supporting technologies or trade secrets, such as the preparation (test) agent, the proportion synthesis of raw materials, the collocation of different links in the production process, and even the packaging and sealing of the final product (the new coronavirus vaccine jointly developed by Pfizer-Bio-N-Tech requires special glass materials and special insulation methods for its containers, and even the entire storage and transportation equipment and process also contain many technical skills or know-how).
According to the requirements of the regulations, if the non-compete agreement does not stipulate how the original employee shall be compensated after the termination or termination of the labor contract, and the employee has fulfilled the obligation not to engage in non-competition, the employer may be required to pay the employer 30% of the average monthly salary due in the year before the termination or termination of the labor contract, and if the 30% amount is lower than the minimum wage standard of the place where the labor contract is performed, it must be paid according to the minimum wage standard of the place where the labor contract is performed. [124] If the parties have agreed on a non-compete restriction or prohibition and economic compensation in the employment contract or non-compete agreement, the employee may request to terminate the non-compete agreement if the employer fails to pay the economic compensation for three months after the termination or termination of the labor contract. [125] As for the specific effectiveness of the implementation of these requirements, how many people on both sides of the agreement will really follow the legal path to seek relief, or do they just want to calm the situation and do not want to make waves or invest more manpower, material resources and time to continue to struggle (especially on the part of workers)?
It must be pointed out that the judicial interpretation of the Supreme People's Court provides for economic compensation involving non-compete agreements: "...... Where 30% of the average salary is paid monthly economic compensation, the people's court shall support it." [126] The implication is that anything at or below this level is fine. Although purely logically speaking, this is by no means equivalent to 30% of the average wage, and the court will not support it ("if A then B" is synonymous with "if not B then not A", but by no means the same as "if not A then not B"), but if we look at it from the reverse perspective, does this provision actually have the effect of setting a "ceiling" for employees, so that workers lose the opportunity to obtain a higher amount of compensation through negotiation or arbitration? Assuming that the employer and the employee are compensated through an arrangement such as an equity exchange, if the compensation received by the employee exceeds 30% of his average salary due to market fluctuations, will the excess still be upheld by the court, or will it constitute "unjust enrichment" and need to be returned to the original employer?[127] It is obviously unclear at present. What is certain, however, is that the setting of this 30% baseline may in fact create an insurmountable gap for both sides, and also lead to the formation of a rigid or even rigid requirement that is no longer flexible and difficult to adjust to different situations (such as inflation). Whether this meets the actual needs of different industries and different technical fields may need more empirical research and analysis.
In short, preliminary and limited empirical research, relevant investigation reports and court case statistics have shown that the current use of non-compete agreements by domestic enterprises has also produced a phenomenon of generalization and abuse. Some experts have called for the current regulations to bring about new changes in the development of the industry, especially in the field of emerging and high-tech industries, where the innovation and change of technology and business models are relatively rapid, and more specific and precise provisions should be made on the restrictions and application of non-compete agreements. In addition, some new occupations and work models, such as freelancing, sharing economy, platform economy, etc., have also brought new challenges and problems to the application of non-compete agreements, and relevant laws, regulations and judicial interpretations need to be further improved. [128]
V. Conclusion
The emergence of a non-compete agreement was originally a way for enterprises or employers to protect their technical, managerial and other trade secrets, or other information that is considered to be of great value, even if it is not within the scope of the definition of trade secrets. So far, it has been alienated and floated in many places around the world, which has had an adverse impact on the flow of employment, the development of innovative research and even the competition of the entire market.
Even those who support the continued use of non-compete agreements do not object to the need to rectify the current problems arising from them, and are in favor of the fact that such agreements should not be required for workers at the grassroots level or who do not have access to trade secrets, but are skeptical about the need to completely reject or prohibit the use of non-compete agreements, especially the impact on jurisdictions that still have the "unavoidable disclosure" rule. Therefore, the relevant disputes on the issue of non-compete agreements are currently focusing on three aspects: how the procedure should be followed (due process of law), whether it is necessary (necessity) and whether it is reasonable (reasonableness).
The U.S. Trade Commission is obviously well aware of the difficulties it will face in the future, so in terms of substance, on the one hand, it wants to maintain a certain degree of flexibility, and reserves a second-best record in the proposed rules for judicial "presumption" As a means of doing so, starting with the shift or substitution of the burden of proof, just in case, in the hope that even in the worst-case scenario, it will not lose everything, and on the other hand, it insists on an almost total ban and tries to prove that if it is not such a one-step approach, there will be many more difficult sequelae to deal with in the future. According to the association's estimates, about 30 million workers (about 20 percent) in the United States are currently subject to non-compete agreements, and if the current version of the proposed rule is adopted, it is expected that it will greatly promote and revitalize the mobility of the labor force, stimulating an increase in income by $250 billion to $296 billion per year. [129] As to what will ultimately be the case, and whether it will be as expected by the Trade Commission, the answer will naturally be given only by time.
Since the plaintiff (trade secret holder) often faces the challenge of difficult proof in the process of litigation for infringement of trade secrets, litigation strategies and practices often replace it with suing for breach of the non-compete agreement, which can also achieve the purpose of protecting trade secrets. Inevitably, the Commission's proposal will have a very significant impact on such a litigation strategy.
At present, China is encountering almost the same problems as Europe, the United States, Japan and other places in this regard, but due to different national conditions, at least in the rule-making process, it will not encounter the same troubles and difficulties as the United States, but in terms of substantive issues, it must balance all relevant factors and seek to improve the orderly, vigorous development and innovation ability of its own market. In any case, international developments, debates and proposals have very important reference value and deserve continued attention.
In short, behind the non-compete agreement is mainly about the management of the employer. Requiring employees to sign a non-compete agreement at the moment of employment can be regarded as just a "routine matter", but from a psychological point of view, this is tantamount to sowing a seedling, which more or less releases a negative signal, indicating that the employer does not dare, unwilling or thinks that it is difficult to trust all its employees from the beginning, and it is also equivalent to making the entire working environment deteriorate from the beginning, and if something happens in the future, the senior management will "not open any pot" It is easy to make the whole situation worse. Once it is really necessary to invoke the clauses in the non-compete agreement to resolve the dispute through legal means, it often means that the two parties have completely torn their faces and crossed the stage where they can still deal with the dispute in a rational and relaxed way.
Perhaps, as one oncologist invited to share his experience at a public forum held by the Council said, "Do you want to keep people? ...... Even in the C-suite, if somebody is going to leave, who can tell them, 'You're too smart to understand that you go to that company and you can't use your mind for two years?'...... It all comes down to finding a way to retain talent. ”[130]
(End of full text)
* The author of this article, Yuanzhao Sun, is the executive director of the Asia-Pacific Institute of Law, a former distinguished professor at Jinan University, and a former visiting professor at Peking University. This article does not represent the views of the author's service unit.
Annotations (scroll up and down to view)
【1】Federal Trade Commission, Non-Compete Clause Rule, 88 Fed. Reg. 3482 (January 19, 2023).
[2] At present, although the Company Law and the Labor Contract Law respectively refer to the concepts or agreements of non-compete and prohibition, they do not provide a clear legal definition. For example, Article 148 (5) of the Company Law stipulates that directors and senior managers shall not "take advantage of their positions to seek business opportunities belonging to the company for themselves or others without the consent of the shareholders' meeting or the general meeting of shareholders, and operate the same kind of business as the company for themselves or for others", while Article 24 of the Labor Contract Law stipulates that "the scope, territory and duration of the non-compete restriction shall be stipulated by the employer, and the agreement on the non-competition shall not violate the provisions of laws and regulations." "There are local regulations that provide definitions. For example, Article 13 of the Regulations of Guangdong Province on the Protection of Technical Secrets stipulates that "an entity may enter into a non-compete agreement with a relevant person who is aware of the technical secrets." "The term "non-compete restriction" as used in the preceding paragraph refers to an agreement between the employer and the person who knows the technical secrets that, after the termination or termination of the labor contract, within a certain period of time, the person subject to the non-competition restriction shall not be allowed to obtain another employer that has a competitive relationship with the unit that produces or operates the same kind of products or engages in the same kind of business, or that he or she shall start a business to produce or operate the same kind of products or engage in the same kind of business. "The duration of the non-compete restriction shall not exceed two years. During the period of non-competition, the employer shall pay a certain amount of non-compete compensation to the person subject to the non-competition. This article is based on this local statute and the proposed definition of the Trade Commission, which reads: "[A] contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a." business, after the conclusion of the worker’s employment with the employer”。
【3】Dave Jamieson, Jimmy John’s Makes Low-Wage Workers Sign ‘Oppressive’ Noncompete Agreements, HuffPost, Oct. 13, 2014, at https://www.huffpost.com/entry/jimmy-johns-non-compete_n_5978180；New York State Office of the Attorney General, A.G. Schneiderman Announces Settlement With Jimmy John’s To Stop Including Non-Compete Agreements In Hiring Packets, Press Release, June 22, 2016, at https://ag.ny.gov/press-release/2016/ag-schneiderman-announces-settlement-jimmy-johns-stop-including-non-compete。
【4】Executive Order 13725 of April 15, 2016, Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy, 81 Fed. Reg. 23417 (April 20, 2016), codified at 3 CFR 13725.
【5】参见The White House, Non-Compete Agreements: Analysis of the Usage, Potential Issues and State Responses (May 2016), at https://obamawhitehouse.archives.gov/sites/default/files/non-competes_report_final2.pdf。 联邦财政部在此之前发布了一份名为《竞业禁止合同：经济效应与政策影响》的调研报告，替白宫预作铺垫。 参见U.S. Department of the Treasury, Non-compete Contracts: Economic Effects and Policy Implications (March 2016)。
[6] White House Report, supra, p. 4.
[7] Ibid., p. 15.
【8】Department of Justice Antitrust Division and Federal Trade Commission, Antitrust Guidance for Human Resource Professionals (October 2016), at https://www.justice.gov/atr/file/903511/download.
【9】Executive Order 14036 of July 9, 2021, Promoting Competition in the American Economy, 86 Fed. Reg. 36987 (July 14, 2021).
【10】同上注，第一条第五段（其原文为：“Consolidation has increased the power of corporate employers, making it harder for workers to bargain for higher wages and better work conditions. Powerful companies require workers to sign non-compete agreements that restrict their ability to change jobs.” ）。
[11] Ibid., Article 2(g).
[12] The original text of the Order uses "encourage", which literally means "encourage", as if the Trade Commission can do or not, but the real meaning is "to obtain", which is not substantially different from "direct". The main reason for this use of the term is that although the Commission is subordinate to the executive branch, it is a so-called "independent Commission" in structure and form, and any administrative regulations or policies must be approved by the vote of five members, and no more than three of them belong to the same political party, so it is by no means a directive from a superior to a subordinate. See Federal Trade Commission Act (Act of September 26, 1914), ch. 311, §1, 38 Stat. 717 (1914), codified at 15 U.S.C. § 41.
[13] Ibid., note 9, Article 5(g).
[14] Non-Compete Clause Rule, supra note 1. The draft is a "notice-and-comment rulemaking" procedure under the federal Administrative Procedure Act, and is also known as "informal" because it does not involve litigation confrontation of facts, allegations, and evidentiary defenses, and no formal hearings are held rulemaking) process, but may still be called an "informal hearing" at the request of the relevant participants. The notice, draft text, and analysis of the relevant instructions that are first published in the Federal Register under this procedure are collectively referred to as the Notice of Proposed Rulemaking (NPRM).
[15] This proposed definition is clearly much higher than the threshold of the Federal Tax Code (in the case of tax law, a 5% or greater interest in the capital earned from profits is in principle sufficient, and it also includes constructive ownership, such as options on certain securities such as equity interests in bonds), see 26 C.F.R. § 1.414(c)-4 (Rules for determining). ownership)。 It also means that if the rule were to come into force according to this version and be subject to judicial review, the scope of application of the exception to this exemption or limitation would be very limited.
【16】Non-Compete Clause Rule，同前注1，第3535-3537页。
【17】Pub. L. 63-203, 38 Stat. 717 (1914), as amended most recently by Undertaking Spam, Spyware, and Fraud Enforcement with Enforcers beyond Borders (US SAFE WEB) Act of 2006, Pub. L. 109-455, 120 Stat. 3372 (2006), codified at 15 U.S.C. §§ 41-58.
【18】Act of March 21, 1938, 52 Stat. 114 (1938)(a/k/a The Wheeler-Lea Act, Public No. 447 (75th Cong.))。 在此之前贸委会只有对不当（或不公平）竞争的执法管辖权，一旦扩及到对于“不公平或欺诈性行为或操作”的管辖，便意味著无论竞争者使否受到不利影响，贸委会依然可以执法。
[19] The Commission's executive legislative authority derives primarily from the 1975 amendment of the Commission Act by Congress, which gives the Commission very broad powers to make explanatory provisions or provide policy statements and to clearly define unfair or deceptive acts or practices in or affecting commerce. See Magnuson-Moss Warranty—Federal Trade Commission Improvement Act, § 202, Pub. L. 93-637, 88 Stat. 2183 (1975), codified at 15 U.S.C. § 57a.
【20】FTC, Revisions to Rules of Practice (16 CFR Parts 0 and 1), 86 Fed. Reg. 38542 (July 22, 2021).
[21] In view of the 1980 reform legislation of the Trade Commission by Congress, and in order to prevent the criticism of the hearings as not open, opaque and unfair, and basically relying solely on the ideological orientation of the Chairman of the Trade Commission or his political party, the Trade Commission made significant changes to the Rules of Conduct at that time, and referred the hearings to the Chief Administrative Justice, who was relatively neutral in theory. It remains to be seen whether this revision will quickly return the pendulum to its original position, and whether it will rekindle the same or similar controversy and criticism of the year. See Revisions to Rules of Practice, supra, p. 38552 (dissenting opinion by Christine Wilson).
【22】Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 41 (1825)。 至于当代对此一法则的诠释则可上溯自联邦最高法院于1928年对J. W. Hampton, Jr. & Co. v. United States, 276 U.S. 394 (1928)案的判决。
【23】Congressional Research Service, Constitution of the United States: Analysis and Interpretation (a/k/a Constitution Annotated)(2020 Supplement), at 5-6 (substituting the first paragraph at 79 in the Centennial Edition of 2012).
【24】Panama Refining Co. v. Ryan, 293 U.S. 388 (1935); A. L. A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935) (a/k/a The Sick Chicken Case) (the courts adopted the so-called "legislative standards" test in both cases) test) and held that the direct delegation of authority by Congress to the President without providing guidance on issues such as what conditions should be met and when the authority should be exercised violates the "rule of no delegation of authority" and constitutes unconstitutional).
[25] Since the start of the 2021-22 session, six of the nine justices on the Supreme Court have been conservatives, clearly overwhelmingly predominant, and the court has entered its most conservative period since 1931, with 62% of cases decided in accordance with their positions. See Lee Epstein, Andrew D. Martin, & Kevin Quinn, Provisional Data Report on the 2021 Term, June 30, 2022, at https://epstein.usc.edu/s/2021TermDataReport.pdf.
【26】Gundy v. United States, 588 U.S. ; 139 S. Ct. 2116 (2019).
【27】West Virginia v. Environmental Protection Agency, 597 U.S. ＿, 142 S. Ct. 2587 (2022).
【28】Kate R. Bowers, Congressional Research Service (CRS), The Major Questions Doctrine, CRS In Focus 12077 (November 2, 2022), at https://crsreports.congress.gov/product/pdf/LSB/LSB10745; Supreme Court Addresses Major Questions Doctrine and EPA’s Regulation of Greenhouse Gas Emissions, CRS Legal Sidebar LSB10791 (July 12, 2022), at https://crsreports.congress.gov/product/pdf/LSB/LSB10791.
【29】例如，Eight Reactions to the FTC’s Proposed Ban on Non-competes, Law and Political Economy Project, January 19, 2023, at https://lpeproject.org/blog/eight-reactions-to-the-ftcs-proposed-ban-on-non-competes/ (Comments of Catherine Fisk, Barbara N. Armstrong Professor of Law, University of California at Berkeley)。
【30】National Petroleum Refiners Association v. Federal Trade Commission, 482 F.2d 672 (D.C. Cir. 1973), cert. denied, 415 U.S. 951 (1974)。
【31】Chelsey Cox, U.S. Chamber of Commerce Threatens to Sue the FTC over Proposed Ban on Noncompete Clauses, CNBC, January 12, 2023, at https://www.cnbc.com/2023/01/12/us-chamber-of-commerce-threatens-to-sue-the-ftc-over-proposed-ban-on-noncompete-clauses.html.
【32】Maureen K. Ohlhausen and James F. Rill, Pushing the Limits? – A Primer on FTC Competition Rulemaking, U.S. Chamber of Commerce, August 12, 2021, at https://www.uschamber.com/sites/default/files/ftc_rulemaking_white_paper_aug12.pdf。
【33】FTC, Non-Competes in the Marketplace: Examining Antitrust and Consumer Protection Issues (Full Transcript)(January 9, 2020), at 280-281, at https://www.ftc.gov/system/files/documents/public_events/1556256/non-compete-workshop-transcript-full.pdf (Statement of Professor Richard Pierce of the George Washington University Law School).
[34] At that time, the Court rejected the defendant's (appellant's) request to hold that the Commission could only determine the specific criteria for the provisions of the law by means of litigation, based on a Roman proverb: "To express one is to exclude the other" (expressio unius est exclusio alterius). In the Court's view, this proverb has become increasingly unreliable because it is based on the assumption and presumption that the legislator has considered all possible additions and alternatives in the legislative process and has rejected all options other than the legislative provisions. See supra note 30, p. 676. However, if the trial were to be conducted by the same court today, it is likely to adopt a very different attitude and require the parties to provide more arguments and scrutiny. See Aaron L. Nielson, Notice and Comment, D.C. Circuit Reviewed: Was National Petroleum Refiners Association v. FTC Correctly Decided?, Yale J. on Regulation, January 10, 2020, at https://www.yalejreg.com/nc/d-c-circuit-review-reviewed-was-national-petroleum-refiners-association-v-ftc-correctly-decided/。
【35】该项规定是《男士及男童量身服饰规则》（Men’s and Boy’s Tailored Clothing Rule）。 FTC, Notice of Repeal of Rule (16 C.F.R. Part 412), Discriminatory Practices in Men's and Boys' Tailored Clothing Industry, 59 Fed. Reg. (Doc. No. 94-4040, February 23, 1994)。 关于原任委员诺亚‧菲利普斯（Noah J. Phillips）的陈述内容，参见前注33，第220页。
[36] Ibid., note 33, pp. 221-222.
【37】A.L.A. Schechter Poultry Corporation v. United States, 295 U.S. 495 (1935).
【38】Alabama Association of Realtors v. Department of Health and Human Services, 594 U.S. , 141 S. Ct. 2485 (2021)。
[39] Trade Commission, op. cit., note 1, pp. 3484-3485.
[40] Ibid., p. 3485.
[41] Ibid.
[42] Ibid., p. 3486.
[43] Ibid.
[44] Ibid., pp. 3486-3487 (These studies essentially used a "natural experiment" to test the correspondence between the agreement and the wages received, i.e., what happens naturally when a state changes its statute on non-compete or prohibition issues.) Since all other factors have not changed, a more precise assessment can be obtained).
[45] Ibid., p. 3487.
【46】同上注，第3488页。 例如，一项关于美国密歇根州（State of Michigan）的调研显示，在该州强化了对竞业禁止协议的执行后，新创事业的就业开创的比例增加了7.8%，然而这是以新创事业的就业人数除以该州的整个就业人口得到的比例，却没有表明这个增长究竟是基于新创事业的就业人数净成长還是总体就业人数的减少（分母变素）。 參見Gerald A. Carlino, Do Non-Compete Covenants Influence State Startup Activity? Evidence from the Michigan Experiment, Fed. Reserve Bank of Philadelphia Working Paper 21–26 (July 2021), at 16, at https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2021/wp21-26.pdf。
[47] Ibid., p. 3489.
[48] Ibid., p. 3490.
[49] Ibid.
[50] Ibid., p. 3492.
[51] Ibid., p. 3490.
[52] This is also the core proposition of the "neo-Brandeis movement" (named after former U.S. Supreme Court Justice Louis Brandeis to show its inspiration and respect), represented by the chairman of the Board of Trade Commission Lena Khan, that a high concentration of private power (represented by a concentration of undertakings) has a negative impact on the economy, Political and social developments pose dangers and disruptions, and because they are bound to be abusive and inappropriate intervention, it is imperative to take precautions and adjust the broader market and structure to eliminate potential anti-competitive effects. See Lina M. Khan, Amazon's Antitrust Paradox, 126 Yale L. J. 710, 797–801 (2017); cf. Herbert Hovenkamp, Is Antitrust’s Consumer Welfare Principle Imperiled?, 45 J. Corporation L. 101 (2020)。
[53] Ibid., p. 3493.
[54] The Uniform Trade Secrets Act was drafted in 1979 at the initiative of the National Conference of Commissioners on Uniform State Laws (ULC), a non-governmental organization, and was approved by the American Bar Association) and submitted it to the state legislatures for support (as amended in 1985). The two states that have not yet been adopted are New York and North Carolina.
【55】关于“窃取”的定义，参见UTSA § 1(2)；关于禁令请求，参见UTSA § 2。 在1979年《统一商业秘密法》出现之前，各州法院通常会适用《美国法律（侵权责任）重编》（第一版）（Restatement (First) of Torts）的相关法则作为判决依据。 参见Adam Gill, The Inevitable Disclosure Doctrine: Inequitable Results Are Threatened But Not Inevitable, 24 Hastings Comm. & Ent. L.J. 403, 407 (2002).
【56】Economic Espionage Act of 1996, Title I, Pub. L. 104-294, 110 Stat.3488 (1996), codified at 18 U.S.C. § 1831 et seq.
【57】Defend Trade Secrets Acts of 2016, Pub. L. 114–153, 130 Stat. 376 (2016), codified at 18 U.S.C. § 1836 et seq.; see particularly 18 U.S.C. § 1836(b)(2) and (3).
【58】Harrison v.. Glucose Sugar Refining Co., 116 F. 304 (7th Cir. 1902)； Eastman Kodak Co. v. Powers Film Products, Inc., 179 N.Y.S. 325 (N.Y. App. Div. 1919)。 另参见Eleanore R. Godfrey, Inevitable Disclosure of Trade Secrets: Employee Mobility v. Employer’s Rights, 3 J. High Tech. L. 161, 168 (2004)。
【59】J. Thomas McCarthy, Roger E. Schechter, and David J. Franklyn, McCarthy’s Desk Encyclopedia of Intellectual Property (3rd ed.), at 296-297.
【60】参见UTSA, § 2(a)。 本条开宗明义就表明了“事实或威胁性的窃取得予以禁制”（Actual or threatened misappropriation may be enjoined）。
【61】Linda K. Stevens, Trade Secrets and Inevitable Disclosure, 36 Tort & Ins. L.J. 917, 934 (2001).
【62】PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1272 (7th Cir. 1995).
【63】EarthWeb, Inc. v. Schlack, 71 Supp.2d 299 (S.D.N.Y. 1999)(“[The doctrine] potentially requires a court to recognize and enforce a de facto noncompetition agreement to which the former employee is bound, even where no express agreement exists.”).
[64] Ibid., pp. 310-311.
【65】例如，Barilla America, Inc. v. Wright, No. 4-02-CV-90267, 2002 U.S. Dist. LEXIS 12773 at *25 (S.D. Iowa July 5, 2002).
【66】例如，Del Monte Fresh Produce Co. v. Dole Food Co., 148 F. Supp. 2d 1326, 1335 (S.D. Fla. 2001).
[67] Ibid., note 62.
[68] According to one study, as of 2019, 17 states have adopted some form of "unavoidable disclosure" law (Arkansas, Connecticut, Delaware, Florida, Indiana, Illinois, Iowa, Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas, Utah, and Washington), and five states have refused to adopt it (California, Colorado, Louisiana, Maryland and Virginia), and 28 other states have yet to take a stand. See Phoseon Technology, Inc. v. Heathcote, 2019 WL 7282497, at *11 (D. Or. 2019)。
【69】例如，Bayer Corp. v. Roche Molecular Systems, Inc., 72 F. Supp. 2d 1111, 1120 (N.D. Cal. 1999)； LeJeune v. Coin Acceptors, Inc., 849 A.2d 451, 471 (Md. 2004).
【70】例如，Patio Enclosures, Inc. v. Herbst, 39 Fed. Appx. 964, 2002 WL 1492101 (6th Cir. 2002).
[71] Ibid., note 62.
【72】18 U.S.C. § 1836(b)(3)(A)(i)(I).
[73] The legislative rationale for the Defense of Trade Secrets Act states that the scope of the restriction of pre-trial injunctions is primarily to protect the mobility of workers (laborers) and is generally consistent with state regulations. This is because this legislation is not intended to replace the existing state legislation and practice, but rather to coexist in parallel. Therefore, the legislator is also very cautious and reluctant to take sides rashly, and through this legislation to take a clear position on the "unavoidable disclosure" rule, so as not to unduly disturb the established judicial practice of the states. See Senate Report No. 114-220, at 9 (2016).
【74】Sunbelt Rentals, Inc. v. McAndrews, 552 F. Supp. 3d 319, 331 (D. Conn. 2021)。 另参见Kinship Partners, Inc. v. Embark Veterinary, Inc., Opinion & Order, No. 3:21-cv-01631-HZ (D. Oregon January 3, 2022)（奥勒冈联邦地区法院认为该州不太可能会采纳“不可避免披露”法则）；Future Metals LLC v. Ruggiero, 2021 WL 5853896, at *17 n.18 (S.D. Fla. 2021)（佛罗里达南区联邦地方法院以该州尚未明确表示是否采纳此一法则为由，没有支持原告在这个部份的主张）。
【75】Suzanne P. Clark, op ed., The Chamber of Commerce Will Fight the FTC, Wall Street J., January 22, 2023, at , at https://www.wsj.com/articles/chamber-of-commerce-will-fight-ftc-lina-khan-noncompete-agreements-free-markets-overregulation-authority-11674410656 （本文作者是美国商会（U.S. Chamber of Commerce）现任会长）；
【76】Miller v. Honkamp Krueger Financial Services, Inc., 9 F.4th 1011 (8th Cir. 2021).
【77】E.g., Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193 (Tex. 2002); see also Alternatives to Non-Competes with Employees, Morgan & Westfield Resources: M&A Encyclopedia, at https://morganandwestfield.com/knowledge/alternatives-to-non-competes-with-employees/.
【78】E.g., California Business and Professions Code § 16600.
【79】E.g., Wooters v. Unitech International, Inc., 513 S.W.3d 754 (Tex. App. – Houston [1st Dist.] 2017).
【80】E.g., Amway Global v. Woodward, 744 F. Supp. 2d 657 (E.D. Mich. 2010) and Bankers Life & Casualty Co. v. American Senior Benefits LLC, 2017 Ill. App. 160687 (Ill. App. Ct. 2017); cf., Mobile Mini, Inc. v. Vevea, Civil No. 17-1684 (JRT/KMM) (D. Minn. Jul. 25, 2017).
【81】U.S. Department of Justice (USDOJ), Justice Department Requires Six High Tech Companies to Stop Entering into Anticompetitive Employee Solicitation Agreements, Press Release 10-1076, September 24, 2010, at https://www.justice.gov/opa/pr/justice-department-requires-six-high-tech-companies-stop-entering-anticompetitive-employee; see also Final Judgment, United States v. Adobe Systems, Inc., Case No. 1:10-cv-01629 (D.D.C. March 17, 2011).
【82】In re: High-Tech Employee Antitrust Litigation, 856 F. Supp. 2d 1103 (N.D. Cal. 2012); Final Judgment (N.D. Cal. September 2, 2015).
【83】1st American Systems, Inc. v. Rezatto, 311 N.W.2d 51 (1981); see also Nondisclosure Agreement, Wex Legal Definition, Cornell Law School, Legal Information Institute, at https://www.law.cornell.edu/wex/nondisclosure_agreement.
[84] What the court had to consider was whether the restrictive content of the clause was reasonable and the protection of the employer's legitimate business interests, including the principle of proportionality.
【85】Stephen Joyce, States Act to Curb Employer Overuse of Non-Disclosure Agreements, Bloomberg Law, September 27, 2022, at https://news.bloomberglaw.com/daily-labor-report/states-act-to-curb-employer-overuse-of-non-disclosure-agreements.
【86】National Labor Relations Act, § 8, 49 Stat. 449 (1935), codified at 29 U.S.C. § 158.
【87】26 Maine Revised Statutes Annotated (MRSA) § 599-C [House Paper (H.P.) 711, Legislative Document (L.D.) 695 (2022)].
【88】Oregon Statutes (ORS) 659A.370(2) and (5)[S.B. 1586 (2022)].
【89】Whistleblower Act, 740 Illinois Compiled Statutes (ILCS) 174/.
【90】Clifford R. Atlas, Erik J. Winton, Daniel J. Doron and Daniel F. Thornton, A Deeper Dive Into FTC’s Proposed Non-Compete Rule, JacksonLewis Publication, January 10, 2023, at https://www.jacksonlewis.com/publication/deeper-dive-ftc-s-proposed-non-compete-rule.
[91] Commission, op. cit., note 1, p. 3482.
[92] Ibid.
[93] Trade Commission, op. cit., note 1, p. 3484.
【94】同前注78；另参见Nitro-Lift Technologies, L. L. C. v. Howard, 568 U.S. 17 (2012)。
[95] ITC, op. cit., note 1, at 3494 (for specific legal references to these 48 jurisdictions, see note 149 thereof).
【96】Oregon Revised Statutes § 653.295(1)(a)(A)(effective January 1, 2008); Maine Revised Statutes, Title 26, § 599–A(4) (effective September 19, 2019); Massachusetts General Laws, ch. 149, § 24L(b)(i) (effective January 14, 2021); New Hampshire Revised Statute § 275:70 (effective July 28, 2014); Washington Revised Code § 49.62.020(1)(a)(i) (effective January 1, 2020).
【97】Massachusetts General Laws, ch. 149, § 24L(b)(vii) (effective January 14, 2021); Oregon Revised Statute § 653.295(7)(effective January 1, 2022)。 按，“园艺休假”就是对“中止”或“吊销”（suspension）的婉转用语，实质上的意义并无不同。
【98】Washington Revised Code § 49.62.020(2)(effective January 1, 2020); Massachusetts General Laws, ch. 149, § 24L(b)(iv)(effective January 14, 2021); Oregon Revised Statute § 653.295(3)(effective January 1, 2022).
[99] The law of reasonableness dates back to an 18th-century decision of the Queen's Bench in England and is still frequently cited by various courts, including at least temporal (period of validity) and spatial (geographical extent) reasonableness. See Mitchel v. Reynolds, 1 P. Wms. 181, 24 Eng. Rep. 347 (Q.B. 1711)。 The Disadvantages to the Drafters Rule is derived from the Roman proverb "where the drafters are" (Latin: contra proferentem) and was confirmed by the U.S. Supreme Court. See United States v. Seekinger, 397 U.S. 203 (1970);
【100】Restatement (Second) of Contracts § 188(1)(1981).
【101】Russell Beck (Beck Reed Riden LLP), Employee Noncompetes: A State-by-State Survey (updated February 11, 2023), at https://faircompetitionlaw.com/wp-content/uploads/2023/02/Noncompetes-50-State-Noncompete-Survey-Chart-20230211-updated.pdf.
【102】Ticor Title Insurance Co. v. Cohen, 173 F.3d 63 (2d Cir. 1999).
【103】例如，Hill v. Mobile Auto Trim, Inc., 725 S.W.2d 168 (Tex. 1987); Diversified Human Resources Group, Inc. v. Levinson-Polakoff, 752 SW2d 8 (Tex. Ct. App. 1988)。
[104] For example, Chavers v. Copy Products Co. of Mobile, 519 So. 2d 942 (Ala. 1988). The tests and approaches taken by state courts in determining what constitutes an agreement that cannot be enforced or performed are inconsistent. Most state courts have adopted the so-called "reformation" or "equitable reform doctrine," which states that in order to minimize the avoidance of a contract, the court may voluntarily amend the terms of the agreement in equity to make it enforceable or enforceable.
[105] Ibid.
【106】例如,Dick v. Geist, 693 P.2d 1133 (Idaho Ct. App. 1985)。
[107] Trade Commission, op. cit., note 1, p. 3516.
[108] Ibid., p. 3518.
【109】E.g., FTC, Public Forum for the Proposed Rule on Noncompetes, Full Transcript, February 16, 2023, at 33-34, 51, at https://www.ftc.gov/system/files/ftc_gov/pdf/2-16-23_-_federal_-_public_final_002.pdf (statement of Emily Glendinning, Vice President & Associate General Counsel for Employment and the Chief Privacy Officer, BAE Systems, Inc.).
【110】California Dental Association v. Federal Trade Commission, 526 U.S. 756 (1999).
[111] ITC, op. cit., note 1, p. 3518.
[112] Trade Commission, op. cit., note 1, p. 3520. In defining what constitutes an "executive," the Commission's primary consideration is whether it should adopt a full definition of, for example, an existing administrative regulation of the Federal Securities and Exchange Commission, or should it be defined separately, see 17 CFR § 229.402(a)(3)(Regulation S–K); 17 CFR § 203.501(f)(Rule 3b–7)。
[113] Trade Commission, op. cit., note 1, p. 3521. For the Commission's assessment of the pros and cons of labour wages, market liquidity and competition, and competition for goods and services if adopted and implemented in the current version, see pages 3522 et seq.
[114] For a comparative study of the regulation and related practices of non-compete agreements in various places, see Chen Jinquan, On Post-Departure Non-compete Contracts (2008 Third Rewritten Edition), in https://xn--2hvw42a.com/download.php?file=20121204-113518.pdf.
【115】David S. Almeling, Darin W. Snyder, Michael Sapoznikow, Whitney E. McCollum, and Jill Weader, A Statistical Analysis of Trade Secret Litigation in Federal Courts, 45 Gonzaga L. R. 291 (2009/10) and A Statistical Analysis of Trade Secret Litigation in State Courts, 46 Gonzaga L. R. 58 (2010/11)
【116】Rachel Bailey, 2021 Trade Secret Litigation Report, Lex Machina (2021).
[117] Research Group of Intellectual Property Division of Beijing Higher People's Court, "Research Report on the Judicial Trial of Trade Secrets after the Amendment of the Anti-Unfair Competition Law", Electronic Intellectual Property (Issue 11, 2019), p. 65. Taking 2017 as an example, the people's courts accepted a total of 237,242 new first-instance and second-instance cases, and applied for retrial, and concluded 225,678 cases, an increase of 33.50% and 31.43% respectively over 2016. See Supreme People's Court, Judicial Protection of Intellectual Property Rights in Chinese Courts (2017), official website of the Intellectual Property Tribunal of the Supreme People's Court, https://ipc.court.gov.cn/zh-cn/news/view-75.html.
[118] Intellectual Property Division of the Beijing Higher People's Court, ibid., p. 67.
[119] Sun Tianjiao, "I'm an Ordinary Salesman, Which Non-compete Agreement to Sign" Reporter Investigates the Problem of Abuse of Non-compete Agreements by Enterprises, Rule of Law Daily, March 30, 2023, p. 4, published in http://epaper.legaldaily.com.cn/fzrb/content/20230330/Articel04002GN.htm; People's Daily Online, January 11, 2022, in http://opinion.people.com.cn/n1/2022/0111/c1003-32329103.html.
[120] Ning Jiayan and Fan Xuehan, "Changing Taste" Non-compete Agreement: Don't Let Workers Go from "Non-Competition" to "Unemployment", Yicai, March 23, 2022, in https://m.yicai.com/news/101357855.html.
[121] Articles 23 and 24 of the Labor Contract Law.
[122] Fa Shi [2013] No. 4, adopted at the 1566th meeting of the Adjudication Committee of the Supreme People's Court on December 31, 2012.
【123】孙天骄，同前注119。
[124] Article 6 of the Interpretation (IV) of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Labor Dispute Cases: "Where the parties have agreed on a non-compete restriction in the labor contract or confidentiality agreement, but have not agreed to give the employee economic compensation after the termination or termination of the labor contract, and the employee has fulfilled the non-compete obligation and requires the employer to pay the employee 30% of the employee's average salary for the 12 months prior to the termination or termination of the labor contract, the people's court shall support it." "Where 30% of the average monthly wage provided for in the preceding paragraph is lower than the minimum wage standard of the place where the labor contract is performed, it shall be paid in accordance with the minimum wage standard of the place where the labor contract is performed. The average wage here should refer to the "wages due" (not the "take-the" or "actual wages"). According to the definition of Article 27 of the Regulations for the Implementation of the Labor Contract Law, "due wages" include hourly wages or piece-rate wages, as well as monetary income such as bonuses, allowances and subsidies. Therefore, wages such as hourly and piece-rate wages, various allowances and allowances, overtime pay, bonuses and wages paid in exceptional circumstances should be included.
[125] Article 47 of the Labor Contract Law: "Severance compensation shall be paid to the employee at the rate of one month's salary for each full year of service in the employer." If it is more than six months but less than one year, it shall be counted as one year, and if it is less than six months, the worker shall be paid half a month's salary. See also Articles 18 and 27 of the Regulations for the Implementation of the Labor Contract Law.
[126] Ibid.
[127] Article 122 of the Civil Code: "If another person obtains an improper benefit without legal basis, the person who has suffered a loss has the right to request the return of the improper benefit." See also Article 157 of the Civil Code: "After a civil juristic act is invalid, revoked, or determined to be ineffective, the property acquired by the actor as a result of the act shall be returned; The party at fault shall compensate the other party for the losses suffered thereby, and if both parties are at fault, they shall each bear the corresponding responsibility. Where the law provides otherwise, follow those provisions. ”
[128] Sun Tianjiao, op. cit., note 119 (quoting Yang Baoquan, a member of the Labor and Social Security Committee of the Beijing Lawyers Association and a senior partner of Beijing Zhongyin Law Firm).
[129] Trade Commission, op. cit., note 1, p. 3501.
【130】贸委会，同前注109，第54页（Statement of Dr. Sameer Baig, hematologist and oncologist of Palm Coast, Florida）。
Author: Sun Yuanzhao
Editor: Sharon