Understanding Noncompetition Agreements: The 2014 Noncompete Survey Project

96 Pages Posted: 24 Jun 2016 Last revised: 2 Sep 2016

See all articles by J.J. Prescott

J.J. Prescott

University of Michigan Law School

Norman Bishara

The Stephen M. Ross School of Business at the University of Michigan

Evan Starr

University of Maryland Robert H Smith School of Business

Date Written: June 1, 2016

Abstract

In recent years, scholars and policymakers have devoted considerable attention to the potential consequences of employment noncompetition agreements and to whether legislatures ought to reform the laws that govern the enforcement of these controversial contractual provisions. Unfortunately, much of this interest — and the content of proposed reforms — derives from anecdotal tales of burdensome noncompetes among low-wage workers and from scholarship that is either limited to slivers of the population (across all studies, less than 1%) or relies on strong assumptions about the incidence of noncompetition agreements. Better understanding of the use of noncompetes and effective noncompetition law reform requires a more complete picture of the frequency and distribution of noncompetes at the individual employee level. Accordingly, in 2014, we administered a nationwide survey of individuals in the labor force to ask them about their employment status, history, and future expectations — including their experience with and understanding of noncompetition agreements. In this Article, we describe the methods we used to carry out this survey and refine the data for analysis in hopes of encouraging other researchers to use survey approaches to fill other, similarly important gaps in our knowledge. To illustrate the value of the survey project, we present a surprising empirical finding from our data, one that raises questions about existing scholarship and theories about why employers use noncompetes: We find little evidence that the incidence of noncompetition agreements in a state (after controlling for potentially confounding factors) has any relationship to the level of enforcement of such agreements in that state. In other words, an employee in California (where noncompetes are prohibited) appears to be just as likely to labor under a noncompete as an employee in Florida (where noncompetes are much more likely to be enforced).

Keywords: Noncompetes, Noncompetition Agreements, Covenants Not to Compete, Empirical, Survey Data

JEL Classification: C42, C81, J33, J41, J6, J68, K00, K12, K29, L21, M5, M51, M52, M53, M55

Suggested Citation

Prescott, J.J. and Bishara, Norman D and Starr, Evan, Understanding Noncompetition Agreements: The 2014 Noncompete Survey Project (June 1, 2016). Michigan State Law Review, Vol. 2016, No. 2, pp. 369-464, 2016; Robert H. Smith School Research Paper No. RHS 2799961; U of Michigan Law & Econ Research Paper No. 16-018. Available at SSRN: https://ssrn.com/abstract=2799961

J.J. Prescott (Contact Author)

University of Michigan Law School ( email )

3170 South Hall
701 S. State St.
Ann Arbor, MI 48109
United States
734-763-2326 (Phone)

Norman D Bishara

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-6823 (Phone)

Evan Starr

University of Maryland Robert H Smith School of Business ( email )

United States
(301) 405-2320 (Phone)

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