Noncompete agreements, once reserved for executives with unique access to trade secrets, have gone mainstream in America. According to the Government Accountability Office, between 18 percent and 20 percent of U.S. workers are covered by one. From artificial intelligence organizations to sandwich shops, employees have been left unable to leave for competing businesses or start one of their own for defined periods of time.
These agreements have quietly become one of the most consequential and least examined restraints on the dynamism of the American labor market, but that’s beginning to change. The Federal Trade Commission (FTC) has come to oppose many noncompetes, especially in health care. A handful of states have taken action, such as Minnesota, which in 2023 passed laws making the agreements unenforceable. My new research shows encouraging early results.
Supporters call noncompetes a natural extension of freedom of contract. If an employer and employee voluntarily agree to terms, why not expect enforcement from courts? In theory, it sounds reasonable. In practice, it’s open to question.
Workers generally do not negotiate their noncompete clauses; they are handed a stack of onboarding papers and told to sign. Only savvy workers with leverage and other options take advantage of this freedom of contract as a practical outcome.
The deeper question is whether noncompetes serve the public interest, and the evidence increasingly suggests they do not. They may even shape the economic fates of entire regions.
Consider Silicon Valley vs. Boston’s Route 128 corridor. In the 1970s, Boston had every advantage: the nation’s oldest and most elite universities, defense contractors and a dense cluster of engineering talent. Yet by the 1990s, it was Silicon Valley, the scrappy upstart, that became the global center of technology.
Why? One reason is that while both states had some rigorous regulations on wages and employment, California does not enforce noncompete agreements. This contributed to Silicon Valley’s culture of rapid job hopping, knowledge spillovers, and cross firm collaboration. Engineers could leave one company on Friday and join a competitor on Monday. Ideas moved with them, sometimes finding more traction in different environments. Startups formed faster. Innovation accelerated.
Boston, by contrast, locked down its talent. Workers stayed put not because they wanted to, but under threat of lawsuits. The result was a more hierarchical, siloed system — one that didn’t keep pace with the Valley’s dynamism.
This pattern repeats across the country, and not just in high-level tech environments. Beyond limiting mobility, noncompetes suppress workers’ bargaining power and wage growth. Studies show that when employees cannot credibly threaten to leave, employers have little incentive to raise pay or improve conditions. Someone bound by a noncompete may have to uproot their family or leave their industry entirely just to make a change.
Worse, the costs sometimes fall hardest on workers who pose no plausible threat to trade secrets. Certain hair stylists, warehouse employees, security guards and fast food workers have been bound by noncompetes. Jimmy John’s was once reprimanded for making sandwich makers sign them. The idea that a low-wage worker can jeopardize proprietary information by taking a better job at the deli down the block would be laughable if the consequences were not so serious.
Source: Korea Times News
