The free movement in and out of jobs is essential for a dynamic, entrepreneur-driven economy. Yet many states enforce employer noncompete agreements that lock employees into their current jobs and hamper new business creation. To curb the negative impacts of noncompete agreements on entrepreneurship, policymakers should:
- 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.
- Greater enforceability of noncompetes has been found to reduce new business creation by as much as 18%, with disproportionate effects on women.
- About 15% of workers without a college degree and 14% of workers earning less than $40,000 annually are subject to noncompete agreements, even as these workers are just half as likely as their higher-earning peers to possess trade secrets.