Some States Take a Closer Look at Noncompete Pacts

New York Times writer Steve Lohr reported this week that, “In today’s on-your-own economy, workers are urged to be entrepreneurial job hoppers, constantly adapting and searching for the next opportunity.

“But an estimated 30 million Americans — nearly one fifth of the nation’s work force — are hobbled by so-called noncompete agreements, fine print in their employment contracts that keeps them from working for corporate rivals in their next job.”

Mr. Lohr explained that, “Now a number of states are looking to untangle workers from these agreements. The Massachusetts House of Representatives is scheduled to vote this week on a noncompete reform bill. The state is also the location of a union organizing campaign on the noncompete practices of the EMC Corporation, a large technology company based in Hopkinton, Mass., that is known for its aggressive application of these employment contracts.

“Other states are also taking steps as noncompete agreements have spread to summer interns and sandwich shop employees. Hawaii banned noncompete agreements for technology jobs last year, while New Mexico passed a law prohibiting noncompetes for health care workers. And Oregon and Utah have limited the duration of noncompete arrangements.”

Beyond the states, the Times article pointed out that, “At the federal level, the White House published a report on noncompete contracts in May that concluded ‘noncompetes can impose substantial costs on workers, consumers and the economy more generally.’ The Treasury Department also issued a report this year criticizing the excessive use of the contracts.”

More broadly, Mr. Lohr stated that, “Noncompete arrangements, proponents say, can protect valuable trade secrets and motivate employers to invest in worker training because employees are less likely to leave.

But recent research underlines the effects of noncompete agreements on engineers and scientists in technology businesses, where more than one-third of the employees are covered by them. Technical workers in Massachusetts would be paid about 7 percent more if the state’s noncompete practices mirrored California’s, said Evan Starr, an economist at the University of Maryland’s Robert H. Smith School of Business.

“Job mobility is reduced, according to other research, and workers are more likely to detour from their original career paths. Sometimes companies sue departing employees, but those cases are the exception.”

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