The Incomplete Noncompete Picture

Abstract

Covenants not to compete (“noncompetes” or “CNCs”) are an increasingly controversial element of the U.S. employer–employee relationship. Numerous state legislatures are reconsidering their noncompete policies, however the empirical research remains fractured and ambiguous on several key issues. We begin by discussing the various theoretical perspectives in the relevant legal literature. We then carefully evaluate 24 empirical studies focusing on noncompetes (6 utilizing evidence of workers who signed a noncompete, 3 with data on the intra-firm use of noncompetes, 2 experimentally allocating noncompetes, and 14 focused on ad hoc measures of noncompete enforceability, which examine how policy differences affect workers, firms, and regions). Despite the rapidly expanding empirical literature, we argue that many of the most basic questions regarding the use and consequences of noncompetes remain either entirely unanswered or at least unsettled. We conclude that major gaps remain in the research and then provide recommendations for future research efforts to provide a solid foundation for evaluating the recent calls for banning or reforming longstanding noncompete policies at the state and now the federal level.

Keywords: Covenants not to compete, noncompetes, employee mobility

JEL Classification: J42, J48, J62, J68, L4