Since 2018, non-compete restrictions have become more and more proliferated. Faced with the current situation of signing a non-compete agreement when entering the company, the advice that many lawyers interviewed by "Southern People Weekly" can give is to be an "invisible person" after changing jobs and not be discovered.
"The parties have signed a clause and agreed on the non-compete obligation, which is very perfect, and if the defense can only be defended from the fact that there is no violation of the non-compete restriction. Lawyer Hong Zhifeng, a partner at Beijing Zhongwen (Shanghai) Law Firm, said, "Some cases have already been completed, and there is already conclusive evidence, and there is nothing we can do." ”
Recently, during the National People's Congress and the National People's Congress, Chen Yifang, president of the First Civil Division of the Supreme People's Court, said in an interview with the media that in practice, some employers do not distinguish whether the employee is really a person who holds the company's trade secrets and confidential matters related to intellectual property rights, and all of them sign a non-compete agreement.
Chen Yifang analyzed from the trial practice that the current disputes involving non-compete agreements present problems such as a wide scope of application and a wide range of applicable people. "In the next step, the Supreme Court will further balance the relationship between workers' independent choice of employment and fair competition in the market, and continue to seek the best balance between fair competition in the market and value creation for workers. Chen Yifang said.
In the laws and regulations of various countries, non-compete restrictions are regarded as the result of a balance of interests, that is, the restriction of employees' employment rights in order to protect the legitimate business interests of enterprises. The latest changes may be taking place in the United States. In April 2024, the U.S. Federal Trade Commission (FTC) will vote on the final version of the Non-Competition Clause Rule, with the intention of passing administrative rules to completely repeal non-compete restrictions that have been used in the job market for many years. The FTC believes that being able to change jobs freely is at the heart of a free, competitive, and prosperous economy. Non-compete deprives employees of the opportunity to obtain better wages and working conditions, as well as the opportunity to build and expand the talent pool. By ending non-compete, the FTC hopes to promote a more dynamic and innovative sense of healthy competition. They estimate that if passed, 30 million Americans would be able to create jobs and raise wages by $300 billion a year.
In the past three years, there have been many discussions in the civil law community on how to regulate non-compete restrictions, such as the introduction of anti-monopoly laws or anti-unfair competition laws, the proper matching of trade secret protection with the patent system, and the improvement of the identification of similar businesses in non-compete restrictions, so as to protect the mobility of employees. Or introduce the compensation liability of the non-compete unit and the non-compete liability insurance for the employee's resignation, and build a risk-sharing and cost-sharing mechanism for the liquidated damages of the non-compete for resignation.
In a paper entitled "Theoretical Examination of the Abuse of Anti-Monopoly Regulation by Non-compete Agreements", Guo Zongjie, deputy dean and professor of law at Jinan University Law School, argues that the current non-compete restrictions will be alienated into acts that eliminate or restrict competition due to abuse, and the intervention of the anti-monopoly law is justified when the adjustment of rules within the labor law cannot offset the anti-competitive effect of the agreement.
Focusing on the proliferation of non-compete restrictions and related issues, "Southern People Weekly" interviewed Guo Zongjie. He pointed out that the current phenomenon of abuse of non-compete agreements has deviated from the original intention of the establishment of the system, that is, to protect trade secrets and prevent "free riding", showing a generalized tendency of "prohibiting all competition in the name of non-competition", and the non-compete has been alienated into an instrumental measure to restrict the mobility of employees.
Guo Zongjie, deputy dean and professor of law at the Law School of Jinan University (photo provided by the interviewee)
The expansion of non-compete restrictions is an inevitable result of the development of the market economy
Southern People Weekly: When did you notice the abuse of non-compete agreements?
Guo Zongjie: I mainly do competition law research, so all issues related to the field of competition are the objects of my attention.
The scope of adjustment of the competition law has been expanding day by day, from the early days of focusing solely on competition in the fields of trade and industry, to now it has been widely extended to pay attention to various competition issues in the fields of sports, education, and medical care. For example, some time ago, the Court of Justice of the European Union and the Spanish court of Madrid both ruled that UEFA's ban on the UEFA Super League was illegal. As the field of sports becomes more and more commercialized, the competition is becoming more and more fierce, and competition law needs to be adjusted.
When the market develops, there will definitely be market players who want to "free ride" and "overtake in corners", and there will also be anti-competition and restriction of competition.
At the beginning of the birth of the non-compete restriction, there were two purposes, the first was to protect the trade secrets, restricting employees from taking away the trade secrets of the enterprise, and harming the interests of the original enterprise. Therefore, the non-compete restriction should restrain the employees who hold trade secrets and prevent the formation of unreasonable competitive advantages between competitors and the old employer.
The second purpose is to prevent "free-riding". There are costs to hiring people, such as spending time training employees. If an employee goes to another company after mastering the skills and directly uses the learned technology, the new company does not actually pay the labor costs. This is "free riding", to be restricted.
The birth of non-compete agreements is in line with the requirements of competition and legal development. However, with the increasing competition, non-compete restrictions have begun to expand, most notably the implementation of non-compete restrictions on employees on the grounds of protecting trade secrets, even those who are low-skilled or unskilled. The media exposed that some enterprises indiscriminately imposed non-compete measures on all employees, which obviously violated the original intention of the establishment of the non-compete system, not to prevent the loss of trade secrets, but to restrict the flow of employees. It runs counter to the requirements of "improving a unified and standardized human resources market system and promoting the smooth flow of labor and talents across regions" proposed in the 2022 "Opinions of the Central Committee of the Communist Party of China and the State Council on Accelerating the Construction of a National Unified Market".
Southern People Weekly: In recent years, especially after 2018, the competition and competition for labor factors by enterprises has partly shifted to non-compete disputes. In other words, why have non-compete restrictions become more proliferating in recent years?
Guo Zongjie: I personally think there are three reasons, one is that with the in-depth development of the mainland's economy, the market competition in various industries and fields, especially the Internet, new energy and other fields, is becoming increasingly intensified. Correspondingly, in order to prevent brain drain and even prevent employee attrition, enterprises continue to expand the scope of non-compete restrictions. This is the inevitable result of the development of the market economy to a certain stage.
The second reason is that there is a winner-take-all phenomenon in the mainland market. When large enterprises continue to expand their territory and expand into a new field, they use their abundant capital to achieve rapid growth by poaching people.
At the same time, there is the problem of homogeneous competition in the market. If you engage in automobiles, I will also engage in automobiles, and if you engage in games, I will also engage in games, and this is homogeneous competition. The homogeneous competition makes different enterprises in the market have a large number of jobs with similar skills, qualifications and abilities, and poaching people from competitors can greatly save the cost of manual training and achieve rapid growth.
Third, I think there is a very important phenomenon in the entire business field: a considerable number of enterprises pay attention to short-term interests, fail to pay enough attention to the legitimate interests of employees, and lack a reasonable mechanism to protect the long-term interests of employees. Most of our companies do not have an annuity system or employee stock ownership, nor do they have a long-term protection mechanism. Because of the lack of such a mechanism, it is difficult for employees to form an identity with the company, and it is the same to work here and there, and whoever pays a higher salary can leave immediately. There is no community of interests between employees and employers, and the cost of changing jobs is not at all or very low. Employers regard non-compete restrictions as an instrumental measure to prevent employee turnover.
Southern People Weekly: In your opinion, what are the consequences of the abuse of non-compete agreements?
Guo Zongjie: The most direct consequence is to harm the normal flow of the labor market. Labor force is a very important factor in the construction of a unified market, if the labor force cannot be effectively flowed, then there is no way to effectively allocate the means of production and capital factors, and the order of competition will also be destroyed, and the damage to the entire market competition will be very great.
If the free flow of the labor market is harmed, the relations of production and the order of the market economy will be damaged, and economic efficiency will be impaired. For example, if a worker can produce a product worth 100 yuan in enterprise A, but can produce a product worth 200 yuan in enterprise B, if the worker is restricted from going to enterprise B to release greater productivity, there is no doubt that the interests of workers and consumers will be harmed.
The competitive order is a public interest that involves everyone's interests.
Monopolistic behavior is the practice of eliminating or restricting competition in the name of freedom of contract
Southern People Weekly: What is the necessity of introducing an anti-monopoly law to regulate the proliferation of non-compete restrictions?
Guo Zongjie: In the process of continuous expansion of marketization, it will inevitably lead to corresponding competition problems. When competition is excluded or restricted in these fields, and when non-compete agreements are abused and become a tool to eliminate or restrict competition, the intervention of the Anti-Monopoly Law is both necessary and justifiable.
The main purpose of curbing the abuse of non-compete agreements is to maintain the order of competition in the labor market. And the competitive order is undoubtedly a "public interest" that our whole society is concerned about. It can be said that the core reason for the emergence of the Anti-Monopoly Law and the fundamental purpose of the implementation of the Anti-Monopoly Law are to ensure the public interest that can be realized based on the competition order, and the competition order of the labor market is a part of the overall market competition order.
Southern People Weekly: You mentioned in your paper that it is difficult to solve the abuse of non-compete agreements within the labor law, what is the reason?
Guo Zongjie: Labor law mainly deals with the employment relationship between the worker and the employer, and in the specific legal relationship, it is often a specific relationship between two parties. However, the abuse of non-compete agreements may damage the overall competition order in the relevant labor market, and the overall competition problem cannot be solved by relying solely on the internal adjustment of the labor law, or it cannot universally solve all competition restrictions at one time, and the introduction of anti-monopoly laws can achieve this purpose. In this sense, we say that the existing labor law system cannot effectively solve the competition problem caused by the abuse of non-compete agreements, that is, the so-called "lack of restraint factors in the existing path".
Southern People Weekly: It is generally believed that the anti-monopoly law protects the interests of consumers, but how does the anti-monopoly law protect the interests of workers in regulating non-compete agreements?
Guo Zongjie: The anti-monopoly law protects the interests of consumers by protecting competition and ensuring that the market plays a decisive role in the allocation of resources, so as to improve the efficiency of resource allocation. In the process of the Anti-Monopoly Law's intervention in the abuse of non-compete agreements, although the interests of the workers are not the direct goal, the Anti-Monopoly Law protects the maximum realization of the employees' right to labor freedom by maintaining the competitive order of the labor market, and in this sense, the intervention of the Anti-Monopoly Law is also the protection of the interests of the employees.
At the same time, it should also be noted that when the Anti-Monopoly Law intervenes in the abuse of non-compete agreements, the perspective of protecting the interests of ordinary employees and skilled employees is different, and for ordinary employees who do not need to apply non-compete at all, the Anti-Monopoly Law may protect their maximum right to freedom of labor by completely prohibiting the implementation of any non-compete measures on such employees, while for skilled employees, the Anti-Monopoly Law also protects their legitimate labor freedom rights to the greatest extent by ensuring the "adaptability" of the employer's non-compete measures.
Southern People Weekly: Specifically, what kind of path do you say in your paper that "the correction of the abuse of freedom of contract needs to be achieved through the medium of competition"?
Guo Zongjie: Freedom of contract is one of the core principles emphasized by traditional private law, and it is the foundation for the development of civil society. But the freedom of contract upheld by the law should be a substantive freedom of contract, not a formal freedom of contract. If we review the background of the antitrust law, we will find that the emergence of the Sherman Act in the United States was precisely in response to the abuse of the principle of freedom of contract at that time, which led to the emergence of a large number of trust organizations, which in turn undermined the competitive order and detracted from economic efficiency.
Trusts were originally monopolies that emerged in industries such as oil in the United States. In the late 19th century, Standard Oil annexed a number of small manufacturers, forming a highly consolidated "trust" monopoly. These small manufacturers must join the trust, relinquish their operating rights, and lose their commercial, productive and legal independence. If a small manufacturer, such as a small gas station, does not accept the acquisition, then the oil company will not sell oil to him. Similarly, the corresponding trust organizations gradually monopolized industries such as sugar and oil minerals, leading to the bankruptcy of many small and medium-sized enterprises.
The act of joining a trust is done by entering into a contract. Therefore, antitrust law, or antitrust law, was introduced to counter the apparent freedom of contract. Monopolistic behavior is the practice of eliminating or restricting competition in the name of freedom of contract.
From the perspective of non-compete restrictions, if an employee signs a non-compete agreement with an employer, he or she cannot join the company without signing it, which is only a superficial freedom of contract, which has been abused into an indiscriminate restriction. If competition is harmed, the antitrust law will step in.
There are prerequisites for the abolition of non-compete
Southern People Weekly: How do you understand that "the evaluation of the Anti-Monopoly Law is consistent with the results of the Labor Law's examination of the effectiveness of non-compete agreements"?
Guo Zongjie: I often say that the core essence of the law is to balance various interests. The law is very simple, we need to understand the legal principle, the mechanism of the distribution of social interests, and how to properly balance the interests of different subjects.
Specifically, in terms of non-competition, it is necessary to balance the interests of workers, employers, and labor order and competition order. The labor law protects the labor order, and the competition law protects the competition order, which are both public interests, and the court needs to determine the interests that should be protected in the specific legal relationship and the rights that belong to the subject according to the current and long-term interests.
Specifically, when determining whether a non-compete agreement is lawful, three factors should be taken into account from the perspective of both the anti-monopoly law and the labor law: first, whether the enterprise has real and protected trade secrets, second, whether the non-compete agreement was established for the purpose of protecting trade secrets, and third, whether the value of the trade secret is compatible with the non-compete measures, i.e., whether the time, territory and scope of the non-compete agreement are reasonable and necessary.
In layman's terms, whether it is an anti-monopoly law or a labor law, the core of what needs to be examined is whether the competition is to protect trade secrets, and whether your measures match the secrets you want to protect.
In this sense, we believe that the evaluation of the Anti-Monopoly Law is consistent with the results of the Labor Law's examination of the validity of non-compete agreements, and it can be said that the validity of non-compete agreements directly affects the establishment of legitimate defenses or exemptions. However, the Anti-Monopoly Law also needs to conduct a comprehensive assessment of the profit and loss of competition on this basis, so as to finally confirm whether the protection of trade secrets in the non-compete agreement exceeds the necessary limit and causes serious damage to market competition.
Southern People Weekly: Where is the boundary of anti-monopoly laws and regulations on non-compete agreements?
Guo Zongjie: To put it simply, the Anti-Monopoly Law intervenes from the perspective of maintaining competition order in the labor market only "if" and "only if" the non-compete agreement has the issue of eliminating or restricting competition in the labor market, and the Anti-Monopoly Law cannot and should not consider other purposes other than the maintenance of competition order in the labor market.
Southern People Weekly: The U.S. Federal Trade Commission will pass regulations in April 2024 to repeal non-compete agreements and ensure the free movement and full competition of labor nationwide. What do you think of such a move or proposal, and what are the necessary conditions if we want to remove non-compete?
Guo Zongjie: In the United States, some states, including California, Oklahoma, North Dakota, etc., have completely banned non-compete restrictions, and the proposed legislative reforms in some other countries also include proposals to ban non-compete restrictions. They believe that the abolition of non-compete restrictions can encourage the free flow of talent and ensure full competition in the labor market. Section 16600 of the California Business and Professions Code provides that "any contract restricting a person from engaging in a lawful profession, trade, or business of any kind shall be void to the extent thereof." Since then, Silicon Valley has been born and the state has experienced rapid economic growth, and the non-compete ban is widely credited with contributing to this, a phenomenon known as the "California effect." The United States is also currently proposing a complete ban on non-competes.
There is a premise for the comprehensive ban on non-compete restrictions in some states and even the whole of the United States, that is, the United States has a relatively complete legal system for the protection of intellectual property rights, especially trade secrets, such as the use of trade secrets such as patents, codes, drawings and other trade secrets of the original company, which is a crime and will face a heavy sentence of several years in prison. In this way, the core concern of non-compete, the protection of trade secrets, can be achieved through special laws.
At present, the legal system for the protection of trade secrets in mainland China is still in the process of continuous improvement, and the existing relevant laws and regulations are not sufficient to fully protect the trade secrets of employers, for example, the standard for filing civil cases for trade secret protection is too high. During our research on enterprises, we learned that if enterprises want to protect trade secrets through civil channels, the burden of proof is very high, and the rules of evidence are very strict. There are also some enterprises that will use criminal procedures to protect their rights, and then waste judicial resources.
In the long run, with the continuous improvement of the mainland's top-to-bottom emphasis on and even respect for the value of knowledge, our awareness of the protection of intellectual property rights, including trade secrets, and the corresponding legal system will become more and more complete.
Southern People Weekly: Do you have any specific ideas for the specific system design of the anti-monopoly regulation on the abuse of non-compete agreements?
Guo Zongjie: Personally, I believe that at present, it is necessary to further strengthen the theoretical research on the abuse of non-compete agreements under anti-monopoly laws and regulations, explicitly prohibit non-compete agreements that are clearly anti-competitive, and strengthen corresponding law enforcement and judicial activities to curb the current abuse of non-compete agreements. At the same time, it is also necessary to strengthen the research on other anti-competitive behaviors in the labor market, such as the agreement on mutual non-poaching (editor's note: in August 2023, because the signing of the non-poaching convention violates the spirit of the Anti-Monopoly Law and is not conducive to the construction of a unified national market, the four leading pig enterprises were interviewed by the State Administration for Market Regulation), fixed salary behavior and other issues, and issue special anti-monopoly guidelines in the labor market to provide clearer and more definite anti-monopoly guidelines for employers and workers.
For example, in 2016, the U.S. Department of Justice and the Federal Trade Commission jointly issued the Antitrust Guidelines for Human Resources Professionals, pointing out that monopoly agreements in the field of human resources, such as non-poaching and fixed salaries, exclude and restrict competition, just like traditional core cartels (monopolies) such as fixed prices, and greatly damage the legitimate rights and interests of employees. In 2021, the U.S. Department of Justice also initiated antitrust criminal proceedings in such cases for the first time. In October 2021, the European Commission's competition commissioner, Margaret Vestager, also said that fixed-salary agreements and non-poaching agreements would reduce the efficiency of economic operations, noting that these agreements could constitute cartels.
While improving legislation, it is also necessary to strengthen the publicity and implementation of the competition law for workers and employers, so that workers can understand their legitimate rights and interests, and employers can clarify the boundaries of their rights. For law enforcement agencies and judicial authorities, when implementing relevant laws and regulations such as the Anti-Monopoly Law, the Labor Law, and the Labor Contract Law, it is also necessary to achieve a better balance between the interests of employees, employers, and the public interests represented by the competitive order, and avoid mechanizing and dogmatic understanding and application of relevant legal provisions, so as to better protect the highest value pursued by the law.
Southern People Weekly reporter Yang Nan intern reporter Chen Shiyu
Editor-in-charge: Li Tuimao
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