Noncompetes and Employee Mobility

57 Pages Posted: 26 Oct 2016 Last revised: 2 May 2018

See all articles by Evan Starr

Evan Starr

University of Maryland Robert H Smith School of Business

J.J. Prescott

University of Michigan Law School

Norman Bishara

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

Date Written: May 1, 2018

Abstract

We study the relationship between employment noncompetition agreements and employee mobility using nationally representative data on 11,500 labor force participants from the 2014 Noncompete Survey Project. We find that noncompetes are associated with an 11% increase in tenure, a 35% decrease in the likelihood of leaving for a competitor, and a 54% increase in the likelihood of departing for a noncompetitor relative to a competitor compared to a nonsigner. Moreover, we find (1) that these patterns hold even in those states where noncompetes are entirely unenforceable and (2) that they are even stronger for employees who are offered noncompetes after they accept their job offers. Examining mechanisms underlying the observed retention and redirection results, we find no evidence that employees bound by noncompetes receive less recruitment attention from competitors, although they are relatively more likely to search for positions at and receive recruitment attention from noncompetitors. When it comes to turning down offers, however, we find that regardless of actual noncompete enforceability, approximately 40% of those who have received an offer from a competitor and turned it down cite their noncompete as a factor in their decision to turn down these offers. Finally, we present evidence that individuals who believe that their employer will sue them to enforce their noncompete, who believe that a court will enforce their noncompete, or who have been reminded of their noncompete by their employer are more likely to cite their noncompete as a factor when turning down competitor offers, whereas we find no evidence that actual enforceability is a deterrent.

Keywords: Covenants Not to Compete, Employee Mobility, Career Detours, Labor Market Frictions

JEL Classification: J41, J42 J62, K31

Suggested Citation

Starr, Evan and Prescott, J.J. and Bishara, Norman D, Noncompetes and Employee Mobility (May 1, 2018). U of Michigan Law & Econ Research Paper No. 16-032. Available at SSRN: https://ssrn.com/abstract=2858637 or http://dx.doi.org/10.2139/ssrn.2858637

Evan Starr (Contact Author)

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

United States
(301) 405-2320 (Phone)

J.J. Prescott

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)

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