The Economic Harm of Noncompetition Agreements

The White House has taken a stand against the overuse of noncompetition agreements as a condition of employment. I think people may not realize how widespread noncompetition agreements are. Many businesses apply them to all employees regardless of whether the employee has access to sensitive information about the company’s processes and strategies. A noncompetition clause typically prevents a worker from taking a job with a direct competitor, but often they also prevent workers from taking jobs with the company’s clients, prospective clients, and competitors of clients and potential clients. In extreme cases they may extend to any company at all that hires workers to do the same kind of work or that has any customers in common. A single sentence in a noncompetition clause can make it virtually impossible for a worker to take a job in an entire industry. When you consider how many workers are covered by noncompetition agreements, roughly one fourth of all workers in the United States, they are a significant aggregate cause of unemployment. Workers who lose jobs may have to change careers and learn new skills before they can take a new job. The primary purpose of a noncompetition agreement is exactly what the exactly what the term suggests, to interfere with competition. However, they are also used to intimidate employees by making it harder for them for them to leave their jobs. Both purposes create problems for the economy as a whole, and so the rules surrounding noncompetition agreements ought to be more strict than they are.