"The Case Against Non-Compete Clauses"

In the Leaders section of its May 19, 2018 issue, The Economist published “The Case Against Non-Compete Clauses.”   The article makes a compelling case of how and why America would benefit if workers had greater freedom to choose their next employer without the incumbency of non-compete restrictions.

Non-competes are governed by state law, and courts analyze them according to the individual facts of a particular situation.  To enforce non-competes, employers need to prove the restrictions are reasonable in scope and duration, that good consideration was received by the employee in exchange for the covenant, and that there is a legitimate business need for the restriction.  According to a study by the Treasury in 2016, almost 20% of American workers are bound by a non-compete – and almost 40% have been subject to one at some point.  This is a very significant number of workers.  What is most disconcerting is that approximately 15% of American employees without a college degree, and a similar share of those earning less than $40,000 a year, are bound by them.  It is hard to believe that these individuals pose such a competitive threat that their freedom to work should be so restricted.

Our advice is that non-competes should be reviewed and negotiated before the employee accepts a job offer.  Also, in light of the fast pace of change in today’s world, the duration of non-competes should be shorter, and supported with severance pay.