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 14% of workers without a college degree and 13% 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.
Several states took action in 2019 to reform and restrict noncompete agreements, including the state of Washington. Policymakers in Washington banned any noncompete agreement lasting longer than 18 months and made them unenforceable for employees making a salary less than $100,000 per year. Washington also increased transparency by requiring employers to give potential employees notice of noncompete agreements prior to their employment start date. Policymakers in Maine and Oregon took similar steps to improve transparency.