About one in five American workers—approximately 30 million people—are bound by a non-compete clause and are thus restricted from pursuing better employment opportunities. A non-compete clause is a contractual term between an employer and a worker that blocks the worker from working for a competing employer or starting a competing business, typically within a certain geographic area and the period after the worker’s employment ends. Because non-compete clauses prevent workers from leaving jobs and decrease competition for workers, they lower wages for both workers who are subject to them as well as workers who are not.
Non-compete clauses also prevent new businesses from forming, stifling entrepreneurship, and preventing novel innovation which would otherwise occur when workers can broadly share their ideas. Noncompete clauses can exploit workers and hinder economic liberty. Workers often have less bargaining power than their employers. In many cases, noncompete clauses are take-it-or-leave-it contracts that exploit workers’ lack of bargaining power and coerce workers into staying in jobs they would rather leave. To varying degrees, each state restricts employers’ ability to enforce noncompete clauses due to concerns that they harm workers and threaten a person’s ability to practice their trade.
