Noncompetes and Other Post-Employment Restraints on Competition: Empirical Evidence from Trade Secret Litigation

Abstract

Noncompete clauses in employment agreements are both common and controversial. An estimated 28 million Americans—nearly 20% of the U.S. workforce—are currently bound by a noncompete. The traditional view that noncompete agreements can facilitate increased productivity by encouraging employers to invest in employee training has been challenged by numerous legal and economics scholars, who contend noncompetes hinder employment options for skilled workers and limit information spillovers, which are both vital drivers of innovation. Based on these claims, several states have recently limited the enforcement of noncompetes, and similar legislation is pending at the federal level. Despite their widespread use, empirical research regarding noncompetes is fragmented and incomplete. In particular, there have been few empirical studies based on actual employment agreements. This paper helps fill an important gap in the existing literature. Using a novel dataset of over 500 employment agreements that have been publicly disclosed in trade secret litigation in federal court, it finds that noncompetes are more frequently enforced against technical and sales personnel than high-ranking corporate executives. In addition, it finds that noncompetes are common for employees with a base salary below $100,000 per year and that California-based employees are significantly less likely to be bound by a noncompete. The implications of these and other findings from the dataset are discussed in the final section of the paper.