To Compete, or Non-Compete:

The Effects of Employee Non-Compete Agreements

April 21, 2009
Matt Marx (Harvard Business School) Deborah Strumsky (University of North Carolina) and Lee Fleming (Harvard Business School)

This brief is based on "Mobility, Skills, and the Michigan Non-compete Experiment," which is forthcoming in Management Science.

The movement of talented individuals among different firms is a key to the growth and development of new firms and, by extension, to regional economic development. While all states have laws barring mobile employees from revealing their former employer’s trade secrets, many states, including Massachusetts, go further and allow the use of "noncompete" agreements—provisions in employment contracts that prevent employees from taking jobs in similar businesses for a certain period of time after they leave their current firm. Established firms in knowledgeintensive fields generally favor such agreements as a way to ensure that trade secrets are not revealed as well as to honor customer confidentiality and prevent competitors from appropriating the specialized skills and knowledge of others’ employees. In recent years, however, a small but growing body of research has suggested that more new firms form in states that ban such agreements, such as California. However, causal evidence for these assertions remains thin and we know little about which groups of knowledge workers are likely to be more affected by noncompetes.