A fascinating new paper written by lawyers and economists at the University of Michigan examined the role of noncompete agreements in U.S. labor markets—with a number of remarkable findings. One of the most striking is that the same percentage of American workers with less than a high school education were covered by such clauses in 2014 as American workers with a doctorate—approximately 20% each. Critics of noncompete agreements argue that such clauses are used to lower the bargaining power of low-wage workers by preventing them from switching jobs, and that these types of workers do not have the special knowledge or skills that such agreements are theoretically meant to prevent being transferred between competing firms. [1]

The paper also found that noncompete clauses are almost as common in states where such clauses are largely unenforceable, like California and New York, as in states where courts regularly enforce noncompete clauses. The authors speculate that such unenforceable clauses are still used because employers believe they may influence employee behavior. Overall, the authors found that 1 in 5 US workers are currently covered by noncompete clauses and almost 40% have signed at least one such agreement in the past. Although noncompete agreements are associated with a 10 percent wage premium, this depends on whether the noncompete is added before or after a job offer is accepted (only workers with noncompetes offered before accepting the job saw wage benefits).

Overall, noncompete agreements have come under increasing scrutiny in recent years as their insertion has risen, and courts in California and New York have started to enforce them less frequently. This new paper offers new insights into this important aspect of modern US labor law.

[1] Starr, E. et al (September 2019) Noncompetes in the US Labor force from University of Michigan Law and Econ Research Papers https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2625714 Accessed November 6 2019