Noncompetes and Employee Mobility

52 Pages Posted: 26 Oct 2016 Last revised: 14 Jan 2019

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: January 13, 2019

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 those bound by noncompetes exhibit 11% longer tenures and are more likely to report that they will leave for a position with a noncompetitor relative to a position with a competitor. Perhaps surprisingly, we find that these patterns are statistically indistinguishable across states whether they do or do not enforce noncompetes. Decomposing mobility into its constituent subprocesses, we find no evidence that employees bound by noncompetes receive less recruitment attention from or expend less effort searching for positions at competitors, and they appear distinctly more mobile on these measures with respect to noncompetitors. Nevertheless, we discover that approximately 40% of noncompete signers who have turned down an offer from a competitor cite their noncompete as a factor in their decision—in both enforcing and non-enforcing states. Finally, we document that individuals who believe that their employer will sue them over the violation of a 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 (January 13, 2019). 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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