Bundling Employment Restrictions and Value Appropriation from Employees

Abstract

We examine how firms bundle multiple postemployment restrictions and how such bundling is associated with value appropriation between firms and their employees. Using novel employee- and firm-level survey data on nondisclosure, nonsolicitation, nonrecruitment, and noncompete agreements, we theorize and show that when firms adopt any restrictions, they tend to adopt only a nondisclosure agreement or all four restrictions. Consistent with bundling enabling value appropriation by firms, employees bound by all four restrictions earn 5.4% less than employees with only nondisclosure agreements. In contrast, the same comparison shows that top managers have relatively higher earnings, consistent with their higher bargaining power. Finally, we show that examining one restriction alone (e.g., only nononcompetes) yields different results from analyses that consider bundling, likely because of selection concerns.

Keywords: Employment Restrictions, Value Appropriability, Value Protection, Bundling

JEL Classification: J31, J41, J42, K31