The benefits of non-competes accrue primarily to employers and at the expense of employees. Moreover, the process by which these parties agree to such contracts only rarely includes a true negotiation. Rather, employees are routinely strong-armed into signing the contract without carefully considering its implications.
In this paper, Matt Marx offers several proposals to balance the interests of firms and workers: (1) require that employers inform workers that they intend to seek a non-compete agreement in advance of hiring, (2) end the practice whereby firms are not required to compensate existing employees for signing a new or revised non-compete and allow employees the right to refuse to sign an updated contract without retaliation, (3) abandon the practice of allowing judges to modify non-compete agreements, (4) empower state attorneys general through unfair-employment-practice statutes to eliminate non-competes that are unenforceable, and (5) institute mechanisms to make non-disclosure agreements easier to enforce.
This report describes evidence from empirical research on non-compete agreements and recommends policies to balance the interests of firms and workers. Firms use non-competes widely in order to minimize recruiting costs, safeguard investments, and protect intellectual property more easily than is achieved via non-disclosure agreements. But these benefits come at a cost to workers, whose career flexibility is compromised—often without their informed consent.