The ability of an entrepreneur to start a new business matters for economic growth because new companies account for nearly all net new job creation. To fill these new jobs and fuel firm expansion, young companies need access to talented workers.
Yet, if potential entrepreneurs and skilled employees are locked out of new opportunities, job creation and economic growth will be hindered.
The free movement of individuals in and out of jobs is a crucial component of an entrepreneur-driven economy, in which those with good ideas can easily leave employment to start new businesses.
Strict state enforcement of contracts that forbid exiting employees from working for competitors or launching their own company, however, can disrupt entrepreneurship by erecting a barrier to mobility.
The pervasiveness of non-compete agreements among all employees, but especially among highly skilled workers, has been steadily increasing. Nine out of ten managers and technical employees now report being subject to these constraints.
While the number of workers subject to non-compete agreements is increasing, the degree to which a former employee will be restricted from related employment or entrepreneurship differs depending on the state in which he resides.
Most states allow non-compete agreements under some degree of reasonable protection of a legitimate business interest, and the terms can be upheld or overruled by a judge.
Famously, California courts rarely enforce non-compete clauses, while some states, like Florida, are more stringent in their enforcement.
Laws governing non-compete agreements can be adjusted to improve labor mobility and liberate entrepreneurs.
Shorten the Duration
Narrow the Scope
Level the Field
Consult the following resources, or contact Jason Wiens at firstname.lastname@example.org:
Immigrant Entrepreneurs: A Path to U.S. Economic Growth
Entrepreneurship's Role in Economic Development