The Big Story: Non-compete ban would boost the startup ecosystem
Policymakers received thousands of comments this week as a key agency considers a change that would make it easier for people to leave their jobs, including to found and join early stage startups. In conjunction with the Juelsgaard Intellectual Property and Innovation Clinic, Engine submitted comments this week to the Federal Trade Commission urging the agency to move forward with a proposed rule change that would ban most non-compete agreements, which are post-employment contracts that bar workers from taking up jobs with competitors for a prescribed period of time. The FTC’s proposed rule comes on the heels of state efforts to limit non-competes and Congressional efforts, including the Workforce Mobility Act, to create a more mobile workforce under which innovation could thrive.
Post-employment non-compete agreements are used across multiple industries and employment levels, including in-demand fields that supply the tech and startup talent pool. Though these agreements have been commonplace historically, their frequent and overly broad use often serves to stifle innovation and startup formation and growth by preventing highly-skilled workers from accepting positions in their field at startups and hindering them from launching their own companies. The research bears this out—according to a study from the Economic Innovation Group, in Hawaii, a ban on non-compete agreements and non-solicitation covenants led to an increase in the number of technology businesses.
The Commission’s proposed action on non-competes is an opportunity to create clarity for startups and bolster innovation, but policymakers at other levels of government—including in Congress—should continue to pursue limits on the use of non-competes as well. Startups are the cornerstone of the U.S. economy and their activity contributes significantly to our position as a global leader in innovation. Talent mobility is critical to startup formation and essential for the continued growth of the startup ecosystem.
Policy Roundup:
Congress zeroes in on capital access opportunities for innovators. At multiple House Financial Services Committee hearings this week, members explored ways to increase capital access for startups. Democrats, Republicans, and witnesses alike expressed concern that the current accredited investor definition is arbitrary and excludes individuals—particularly those from underrepresented backgrounds—from investing in startups. At the same time, some policymakers—including at the Securities and Exchange Commission—have proposed raising the thresholds in the accredited investor definition, meaning fewer people would be able to invest. Expanding the definition to include more individuals is critical for increasing investment in the startup ecosystem.
Content moderation bills slated for key committee vote next week. The Senate Judiciary Committee is set to vote on three bills that would impact how Internet companies host and moderate user-generated content. The bills—the EARN IT Act, the STOP CSAM Act, and the Cooper Davis Act—are aimed at pushing platforms to find, remove, and report harmful content online. While the bills share the noble goal of protecting young Internet users, they contain provisions that would push companies towards invasive and proactive monitoring of all user content—and impossibility for growing startup platforms—while changing existing legal liability frameworks in ways that could disincentivize companies from looking for problematic content. These kinds of unintended negative consequences have been noted by data security experts, academics, civil rights, and technology sector stakeholders that have expressed concerns.
Washington state passes new privacy law greenlighting private lawsuits. This week, the Washington state legislature passed a novel privacy law with no small business exceptions that allows private litigants to sue for alleged violations. The law, the My Health My Data Act, contains very broad definitions of consumer health data that will capture far beyond what is traditionally thought of as health data, including data that could be used to infer health status. Expected to be signed shortly by the governor, the law will apply to all businesses that encounter such data including small entities like startups—which receive a three-month enforcement delay to June 30, 2024. The novel law expands the patchwork of state privacy laws in a new direction and stands to directly impact startups innovating in the consumer health data space and beyond.
Independent contractor hearing sheds light on reclassification. A House hearing this week examined the Biden administration’s plan to reclassify independent contractors in a way that would limit the ability of startups to hire the talent they need. Independent contractors are integral to innovation as they help startups and smaller companies fill in labor gaps on an as-needed basis within startup budgetary constraints. The Biden plan would reverse a previous independent contractor rule and mirrors a California rule that lawmakers like Rep. Kevin Kiley (R-Calif.), said has caused his constituents “irreparable damage.”
Key policymakers call for federal privacy rules at oversight hearing. At a House featuring all three current Federal Trade Commissioners this week, a bipartisan collection of lawmakers highlighted the need for a national privacy standard. Pointing to the agency’s privacy proceeding, Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-Wa.) said the Commission instead needed direction from Congress through a comprehensive privacy bill like the one passed out of the Committee last Congress. The remarks echoed a statement we submitted for the committee record ahead of the hearing calling for a uniform federal privacy standard that creates clarity and certainty for startups.
Startup Roundup:
#StartupsEverywhere: Hampton, Virginia. 100 percent-disabled veteran Dr. Ahmad Glover had a goal of developing touchless wireless power networking technologies that would recharge devices and provide power the same way that we get WiFi: over the air. We spoke with Dr. Glover about his unique experience with the U.S. innovation ecosystem, the importance of telecom and power in rural areas, and how policymakers should think about spectrum selloff.
