States and Non-Competes: Where Are Things Headed?

By Schonette J. Walker & Arthur Durst

Non-competes have been used in employment contracts for centuries. In the past few decades however, perhaps because their use has increased, they have come under greater scrutiny as their potential for harm has been exposed. Arguments that these provisions are capable of inflicting significant harm on employees, competition and even downstream consumers are persuasive. As states see the potential for negative impacts on their citizens and their economies, many are taking action in the form of legislation as well as litigation. And as more is learned in this space, additional areas of scrutiny will likely emerge.

By Schonette J. Walker & Arthur Durst¹

I. INTRODUCTION

Over at least the past ten years, a growing body of economic literature has been detailing the pernicious effects of non-compete agreements between employers and employees. Harm to low-wage workers from non-competes is particularly well established. Broadly, the provisions forbid employees from working for competitors of an employer, for a certain period of time and over a defined geographic area.² Non-competes also prevent the employee from anywise competing with the employer in the future, including starting a competing business. In this sense, non-competes can be especially problematic for one of the key drivers of the U.S. economy — new small businesses growth.

Ten years of mounting evidence may seem like a long time, but it is not in the context