Discussion keeps the world turning.
This is Roundtable.
Signed, sealed, and shackled, non -compete agreements started as a way to shield trade secrets.
But now, they're often used to guard turf, control talent, and stifle movement, sometimes among workers who never held a secret to begin with.
Get ready to explore the thorny world of non -compete clauses and what it means for your professional freedom.
Coming to you live from Beijing, this is Roundtable.
I'm He Yang. For today's program, I'm joined by Steve Hatherly and Yu Shun in the studio.
First on today's show.
Ever feel like your old job is haunting your chances of moving forward in your career?
Or worse, like you're caught in a legal trap with no escape?
Non -compete agreements now widespread beyond the C -suite to entry -level jobs could be setting legal traps for your next career move.
It's a growing barrier that affects more workers than ever before.
Let's start by understanding exactly what these non -compete clauses are and what they were originally meant to do.
First of all, thankfully, I think I didn't sign any non -compete clauses yet.
Or maybe I did. I didn't even realize it because it could be very vague.
A non -compete agreement is a clause in which an employee agrees not to join a competitor or start a similar business after leaving a company, aiming to protect the employer's confidential information and trade secrets.
So in practice, it helps safeguard core assets such as technology and client lists and also serves to retain talent by discouraging trained employees from quickly moving to their rival firms. Yeah, strategic plans, all of those things they're looking to protect, right?
This is a really, really, really tricky issue because there are arguments for NCCs and there are strong arguments for, I think we can say, and there are very strong strong arguments against, too.
It's debatable on both sides, and it's understandable on both sides.
But yes, from the company's point of view, they're looking to protect their trade secrets, and they want to prevent their former employees, right?
Because we're talking about employees after they move on in their career.
They want to prevent them from directly sharing that information with their competitors, or using that information to their own advantage while competing in the the same industry yeah that all sounds quite reasonable right after all the company did invest let's say time and also effort and maybe money in training its talent but whether it's being like used appropriately might be the real issue and we're going to talk about yeah and the time and the reason why this is a divisive issue is because the time and the energy that and the money that goes into training an employee well that's different
from employee to employee right and And some of that might be, there might be a strong argument there, but other times that argument might be weaker.
These have been around for a really long time, by the way.
They go back to the Middle Ages, if you can believe that.
I was really surprised to find that out, specifically to 15th century England.
There was one case there in the year 1414 that was pretty well -known at the time.
We're not going to go into that detail, but the point is, these NCCs have been around forever.
and how is it applied legally in china these days to allow such agreements as long as they comply with national laws and regulations so these kind of clause only it's supposed to apply only to senior management senior technical staff and other employees who have access to confidential and personnel with confidentiality duties.
And actually, it takes effect upon the termination or dissolution of the labor contract.
So, the contract clause, it has to be agreed upon by both the employer and the employee in the contract itself.
Or you could do it on a separate A separate piece of paper as well.
You can have a separate confidentiality agreement.
The employer has to provide monthly economic compensation during the non -compete period, which I found to be an interesting clause.
And the employee must pay a penalty if they breach the contract.
That part about the employer providing monthly economic compensation during the non -compete period, that's a bonus for the employee, right?
Because if, say, it's a six -month non -compete, that means they're going to be compensated for six months during that time.
I'd say this is a prerequisite of a non -compete clause, because in the law of the land, wherever you live, it's a fundamental and basic human right to work for pay.
So you can't say no matter what it is that I can't work.
And for that to be enforced, there has to be a compensation clause because everybody's got to eat.
Yeah. Yeah. You got to pay the bills.
Right. just one last important point on on that topic um the period the non -compete period i said oh whether it's six months or whatever it can't exceed two years after the employee leaves the company so 24 months and that's the maximum amount of time they can apply yes indeed and here let me offer you a little trip down memory lane, I suppose, for those who watch tech in China.
In 2005, tech executive Li Kaifu became the center of one of the world's most, or at least in China and the U .S., one of the most high -profile non -compete disputes in the tech industry.
In July 2005, Li resigned from his role as global vice president at Microsoft and joined Google as vice president and president of Google China.
And Microsoft quickly filed a lawsuit in Washington state court claiming Li violated a non -compete agreement by joining a direct competitor and demanded an injunction to prevent him from working in areas overstepping with Microsoft's core business.
And after a long legal battle that involved back and forth China and the U .S., the court allowed Li to work at Google, so the competitor company, but limited his responsibilities to non -core areas, such as recruitment and establishing Google China's research center.
And these bring back some fond memories.
And he was prohibited from participating in any research -related product development projects.
So that was like the court saying, OK, you can do that, but we're also going to somehow respect the non -compete clause that was a part of the previous Microsoft contract.
Indeed. And in Li Kaifu's memoir, he noted that Microsoft did not pay him a non -compete compensation.
And how the courts in Washington state and California ruled on that was very interesting.
So this is a fundamental part of the non -compete agreement argument.
And this case later on had an influence on the CATL or Ningde Shidai, a huge lead battery company, a tech company in China, suing a former senior executive as well.
So that was how it used to be.
But now we know that non -competes are more widespread than the corner office holders, both in China and abroad.
Are these agreements growing too common?
And what does it mean for workers at all levels?
Yeah, actually, from the example that you just listed, over the past few years, this term has frequently appeared in no matter it's the business world or just new media articles.
It seems that these incidents have made people increasingly familiar with such clauses and maybe pay more attention to these kind of clauses when they're signing in a work contract.
So in China, various media outlets reported NCCs experienced a dramatic surge in recent years, and from 2019 to 2021, driven by the rapid growth of new industries like tech and the internet, the number of non -compete cases in some major regions like Beijing and Shanghai showed an overall upward trend, with Hangzhou which is in eastern China seeing the biggest jump going from 43 cases in 2019 to 73 in 2021 which is a nearly 70 percent increase yeah Hangzhou I mean Hangzhou is a tech hub right so that kind of makes sense but in the U .S. the the FTC that's the Federal Trade Commission I found this to
be quite surprising they estimate that one in five Americans work under a non -compete clause.
That's from, pardon me, Marketplace from a couple of years ago.
That's 20%, right? That, to me, says that the non -compete clause has become kind of a standard clause as a part of employment contracts across, you'd find that across various industries and across different job levels as well, not just executives switching from one major tech company to another major tech company.
But the thing is that we're talking about a lot of these companies, they're They're in tech, internet, a lot of things reasonable.
But it feels like non -competes are everywhere now these days for, you know, far beyond what we initially imagined or we just discussed.
A prime instance in China is a chef who is only responsible for making cold dishes got a non -compete lawsuit demanding over 100 ,000 yuan or just roughly 14 ,000 US dollars.
That's a lot of money.
Yeah, the court ultimately ruled against the company, stating that a chef in such a role was unlikely to have access to confidential information.
Yeah, can I also please just offer a little bit of background of this case?
Because you might think, oh, if this person is just a sous chef, basically, why would a restaurant sue him if he wants to leave the restaurant if he's a nobody who has no access to trade secrets whatsoever, as he claimed to be?
Apparently, this guy decided to set up a restaurant nearby his old restaurant.
So therefore, you know, there's this kind of grudge that his old restaurant held against him and was like, well, yeah, we're going to take you to court and really mess it up really badly for him.
And which gave rise to this case.
That's why this is such an interesting debate, because, yes, you could argue that that, you know, cold salad prepper in a restaurant wouldn't have access to any of the essential secrets that a successful restaurant would have. But they would have access to the kitchen.
They could see how the kitchen was run.
Right. They could see how it operated and who knows what other information they could have access to.
I'm not saying one side or the other who should have won that case or whatever.
But I'm just saying it's a lot.
So there's a lot more gray, it seems, than black and white.
And again, back to the United States as another example.
This is from Professor Orly Lobel from the University of San Diego School of Law, talking about the fact that NCCs, they've expanded now to sectors where you wouldn't even expect them to show up.
Yoga instructors now sometimes have to sign these clauses.
Camp counselors sometimes have to sign these clauses as well.
There was a case in America, the case of Danny Davies.
He worked at a sandwich shop and he was an employee there and he was required to sign a non -compete that barred him from working at any other sandwich shop.
And he initially dismissed the clause, but then later he realized the real legal risk when considering job changes.
These clauses are not jokes, right?
They're not there as like, oh, whatever.
They're taken really, really seriously.
And whether they should be in contracts for certain industries or whether they shouldn't, it seems like they're becoming more widespread.
Yes, and whether that is useful at all is something we can get into a bit later.
The situation abroad can offer some eye -opening lessons.
In the U .S., the Federal Trade Commission has taken a bold stance in 2024, attempting to ban most non -competes nationwide in the U .S. And what's behind this dramatic attempt in 2024 and how did it fall through?
through so actually in april 2024 ftc issued a final rule banning most non -competes set to you know take effect on september 4th 2024 and then one year later in mid -july in 2025 the court granted a stay delaying any enforcement and non -competes remain governed by state laws until until a final decision is made.
The move of the Federal Trade Commission to ban most non -compete agreements nationwide wasn't a sudden decision.
It was a culmination of years of research and observation of their widespread effects.
A 2023 article on Marketplace, as we mentioned before, the reasons are like it's suppressing wages and limited mobility for the employees, Right.
These kind of things that workers from it is actually bending workers from freely switching jobs, which suppresses wages and limits career opportunities.
Yeah, exactly. The FTC is trying to get it done on a nationwide level in America.
Right. But there are states that have fully banned non -compete clauses.
I think there are five in total.
California, Colorado, Oklahoma, North Dakota and Minnesota.
soda um california interestingly that's the largest economy in the states they've banned all non -compete clauses since 1872 that just shows the spirit of that state i was expecting i was expecting like 2014 or no 1872 that's uh that's when they decided to make that change um colorado they banned non -compete clauses in 2022 but they did leave some space for for highly compensated workers, anyone making more than $112 ,500 is susceptible to a non -compete clause.
So that's how that state handled it there.
In Canada, I didn't know about this, this is from a legal website, this is what it says, I'll read to you here.
The enforceability of non -compete clauses is limited in Canada.
The legal system favors an an employee's right to work.
So these arrangements are often difficult to enforce unless they are reasonable in scope and duration.
For both employers and employees, understanding the enforceability of non -compete agreements is essential.
Employers need to know when their non -competes can stand up in court and employees must be aware of their rights to ensure they are not unfairly restricted in their future employment opportunities.
So in Canada, The government basically says, you can have these clauses in there, but it's going to be tough for you to win a court case from the company side.
We are tending to lean towards the protection of the employees.
It's so interesting when you're providing all these international examples and how courts sort of interpret this legal clause in obviously the respective legal books in these countries.
But it's almost like they're holding different positions on the spectrum of how severely do you want to enforce this clause and that Californian example of basically straight ban since back in history.
1800s. Yeah, there's a powerful argument for this decision that it really does stifle innovation and new business formation.
And I think the the mobility the lack of mobility part is easy to understand from the employee's perspective perspective because they can't they can't move around easily.
But why does it suppress wages.
Well if an employee can't move to a new company to take a raise to take more pay because of the non -compete clause that means that they have to stay at their company at the current pay.
And because of that, employers face less pressure to raise wages when employees have nowhere else to go.
Interesting. We've seen how non -competes have stirred controversy in the U .S., Canada, elsewhere.
Now in China, similar clauses are showing up across industries and job levels.
What are the specific problems and ramifications stemming from the overuse or misuse of non -compete clauses?
So one of the issues is absolutely who should sign these kind of clauses, right?
All right. A study by associate professor Xiong Hui and colleagues at Southwest University of Political Science and Law analyzed 556 court rulings from 2015 to 2019 and found that 77 percent of employees bound by non -compete agreements as quote unquote other personnel with confidentiality duties or just frontline staffs like security guards, cleaners, and receptionists, they are the ones who are signing these kind of agreements.
And do they really have that confidential information of that very huge company?
That's a very good question.
And Steve alluded to something like, oh, as long as you've joined our company, I don't mean to sound sarcastic.
I don't know why I just sound like that.
Let's say this person who washes dishes in the kitchen or a junior level security guard. Oh, but this person has seen the inner belly of this company, blah, blah, blah.
Sure, but this person does not hold trade secrets or proprietary information.
That's up for interpretation.
How do jobs at that level, how do they fight against these rules?
The law specifies, you just said it, you should, other personnel with confidentiality obligations.
obligations that's a term for companies to interpret companies can exploit that term to claim that even low -level employees have confidential obligations meaning they have knowledge of just like we talked about the cucumber chef internal process basic customer information busy times of day right the guy opened a restaurant down the street so he had access to the information okay when is it when are the busy times when are the not busy times all of that that stuff could meet that threshold without it being a true trade secret.
And that's something that is really up for debate.
And in my humble opinion, it's very easy to see which side it should tilt.
So what's behind the push to extend non -competes far beyond their original purpose, often done single -handedly by the employer?
It could be in some way of intimidation to a lot of these employees, right?
Right. Even if non -compete clauses might not be legally enforceable for some of these frontline employees, companies still use them as a tool to actually scare or pressure workers from switching to maybe other companies or competitors or just simply just leaving, you know, leaving the company, especially some employees who are unaware of their legal rights.
Yeah, and often it's less about protecting secrets, but more about keeping control or even acting out of spite and just to stop your former employee to leave and start their own business, like the example we mentioned earlier.
I mean, this is when a legal tool becomes a roadblock to someone's next move.
But this is just the beginning.
Non -competes also suffer from vague language, excessive penalties, and a troubling power imbalance that anybody has worked in the workplace sort of feels.
And that can trap even the most loyal employees.
Let's unpack these problems a bit further.
other personnel is vague already i think yeah yeah yeah right i mean what is other hence the big gray area um this was a case from from the states from 2015 you want to talk high profile um tech giants like apple and google they faced a 415 million dollar lawsuit lawsuit in 2015 for no poach agreements that were disguised as NCCs.
Companies can collude implicitly by avoiding hiring each other's workers.
So there's no need for explicit wage fixing or anything like that.
So Apple, Google, Intel, and Adobe, they shelled out $415 million to put to rest that anti -poaching civil lawsuit that accused the companies of conspiring not to hire each other's employees the companies can agree with each other that's collusion right okay let's agree hey i'm not going to hire your employees you don't hire my employees let's just agree on that well in essence that's a non -compete right so the employees are affected there what about the results of that court ruling.
See, this is when I feel like lawyers, they should be paid the big bucks.
And how do you prove such a complicated case?
I bet it went on for years, but it's so good to know that, oh, the employee.
Yes, I'm sure they're pretty deep pocketed.
They can pay up. Okay.
Given all these challenges, what can be done?
Let's explore practical steps both employees and businesses can take to find a fairer more balanced approach to non -competes one hopefully that respects rights without stifling legitimate interests all in all its contracts right so carefully review the agreement to understand its scope duration compensation also penalties keep all your employment contracts and non -compete clauses and payroll records and also many any communication related to uh resignation and also new employment if a non -compete is enforced consult a labor lawyer immediately if you need one and that should be the thing that you're
thinking of when you are no no matter you're thinking about leaving or just joining a new company um if you do need legal help yes seek it out for sure that's from the employee side of of things.
Businesses should try to restrict the NCCs, perhaps, to the roles that are really applicable, right?
The critical roles, senior management, key technical personnel, people with knowledge of the inner workings of the company, and those people who, those employees who possess real trade secrets, rather than just putting it as a clause in all of the contracts for all of the employees who work at a company.
That's just the right thing to do.
Right. And also we talked about the compensation before, give adequate and consistent monthly compensation to employees who are under an NCC during that restricted period.
And that compensation hopefully would be enough, should be enough to genuinely offset the loss of employment opportunities.
Not, you know, just say, here's a few yuan every month, a few bucks every month.
Good luck with your new search six months from now, one year from now.
No, that compensation should provide a comfortable amount of money while that person can't compete.
Also, maybe alternative ways to protect trade secrets, of course, such as NDAs, non -disclosure agreements, I would say, intellectual property registration, also internal security policies, all of these things.
But anyway, these things should should all, like, they are all depending on the company itself.
If they are, like, using it correctly, appropriately, that's their thing.
If they are just using it to even, you know, make money, some of these companies are, that's their choice.
Yeah. I think, you know, like I said in the beginning, this is really tricky because there are strong arguments on both sides.
There are absolutely cases where a non -compete clause make sense, right, to protect a company.
But there are also cases where the employees should be protected as well.
So I think this is one of those situations where if it's within reason, right, if it's within reason, then it makes sense.
If it's not within reason, you know, frontline staff who have no knowledge of the workings of the company, who are just shift workers, part -time workers, that doesn't make any sense really, does it, for them?
Well, according to the Chinese law, employers must pay monthly compensation to the employee during the non -compete period.
No pay, no enforceability.
So even if a worker signs NCC without proper compensation, it's likely it won't hold up in court.
In this sense, yes, many workers are more protected than they realize.
But I can also understand, like as an average worker, then the thought that you'll need to put aside your daily routines and stuff to hire a lawyer, to take your previous employer to court, that's a huge investment.
All of this really brings home a point for me.
Beyond the legal details, it's always best to leave your previous employer on good terms. Avoiding surprises or actions that could make them feel betrayed or threatened helps keep doors open and reduces the chances of conflicts over non -compete clauses.
That being said, though, I also know that in reality, leaving on good terms isn't always easy, especially if you had a difficult boss.
Sometimes moving quickly or starting your own business quietly is exactly the window of opportunity you need.
When timing is everything, protecting your future can feel more urgent than smoothing things over.
over but in the end it's about finding is it a balance a sweet spot or whatever you call it between seizing your chance and knowing your rights so you can move forward with confidence um yeah so what's going to happen in the future do you think that well i don't know how many bosses are listening to our show today um but it's something that is increasingly in the common common knowledge of employers and employees, and we know it's tilting on the verge of being abused.
This is, if we continue down this tech road, right, where AI is applied to so many more industries and tech becomes more a part of our regular lives, oftentimes tech is very secretive information, right?
So if I had to guess, I would guess NCCs are going to become even more common than they are right now.
One in five American contracts, is it going to be two in five, 15 years from now, right?
Three in five, 25 years from now?
As the industry becomes more tech heavy, then the companies become more and more related somehow.
So it might become, And I'm totally speculating here.
It might become even more difficult to switch if you're staying within the same industry from company to company in the future.
I mean, these this agreement has been there for a while.
Right. It has a quite a long history.
So it's there for some reason.
But of course, it is to like prevent from like industry competition kind of thing.
But I believe these kind of industry competition is inevitable.
And the purpose of this regulation is to restrict only who truly possess a company's, let's say, trade secrets.
creates right so for these frontline workers that we're talking about choosing which company to work for should be their freedom and it is also reflect each company's ability to attract and retain talent so if if the company has that dignity they should know how to use it also after listening to today's show average workers should feel okay I can sit back in my sofa and And let out the, because you know it can't hold in court and a lot of, a lot of the times, so it's not as threatening as we thought it could be if you're the entry level job holder.
If it gets to that point, hopefully it doesn't need to get to that point, but you're right if it does.
