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Noncompete reform may not be splashy, but it’s important for encouraging statewide entrepreneurship

Last month, Illinois Governor JB Pritzker signed a comprehensive noncompete bill into law, banning noncompete agreements outright for employees making below a specified wage and requiring employers to provide advanced notice before asking employees to sign.

Amid a legislative session that featured debate around renewable energy, government ethics, and free alcohol to incentive vaccinations, the not-so-sexy noncompete legislation flew largely under the radar.

But it shouldn’t. Aligned with the America’s New Business Plan recommendation on reforming noncompetes, and following in the footsteps of new laws in Washington, Oregon, and Maine, the Illinois law holds great potential for entrepreneurs. A similar law, which limits non-competes for hourly employees, was also recently signed in Nevada.

As written in ANBP, the free movement in and out of jobs is essential for a dynamic, entrepreneur-driven economy.

But for too many, that isn’t the case.

Nationwide, about 13% of workers earning less than $40,000 annually are subject to noncompete agreements — a reality that is detrimental to labor mobility and the state economy at large. According to research, greater enforceability of noncompetes has been found to reduce new business creation by as much as 18%, with disproportionate effects on women.

States have the responsibility and power to change that. ANBP recommends that policymakers:

  • Restrict the use of noncompetes through outright bans or by shortening the maximum duration of these contracts and narrowing the scope of industries and jobs for which noncompetes may be used.
  • Improve transparency by requiring employers to disclose their intent to use a noncompete in job postings and offers.

Illinois did just that, requiring employers “to provide an employee at least 14 calendar days to review the agreement” and banning agreements for employees making $75,000 per year or less (eventually reaching $90,000).

So, while noncompete reform may fail to make headlines commensurate with other new and small business policy actions, there are significant benefits to entrepreneurs — and by extension, local economies — for states committed to seeing it through.

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