Noncompete Agreements - More Harm than Good?

A recent article, here, in The Wall Street Journal (“WSJ”) reports that litigation over noncompetes continues to rise. The rise in litigation over noncompetes begs the question: are noncompetes good for business? While some noncompetes legitimately protect business interests such as trade secrets, other noncompetes seem to be directed at unnecessarily controlling employees and their ability to find a new job after their employment relationship ends (see my previous article on the topic here). As the WSJ article points out, there is worry that noncompete agreements “are having an unintended damping effect on U.S. entrepreneurship, by preventing people from leaving the corporate world to launch their own businesses, or hire workers when they do.” Presumably, employees who have signed noncompetes are afraid of being sued by their former employer if they were to leave. The threat of the time and cost of a lawsuit may prevent these employees from pursuing better opportunities elsewhere, even if their noncompete agreements are likely not enforceable.

The WSJ article shows that while noncompetes may have a limited place in business, their use needs to be more tailored than it is today. Low-level employees without access to truly confidential information or trade secrets do not need to be strong armed into continuing employment with their current employer due to the threat of litigation, whether legitimate or not, if they leave.  The current practice is bad for employees and, ultimately, bad for businesses.