A recent study found that noncompete agreements in employment contracts do not significantly prevent sensitive data leaks beyond what standard nondisclosure agreements already provide. According to research published in the Quarterly Journal of Economics, removing noncompetes increased worker mobility between competing employers by 36% to 52% and raised total wages by 12% to 17%.

The study, conducted by Professors Evan Starr, Bo Cowgill, and Brandon Freiberg, examined over 14,000 job offers across two finance firms. It revealed that workers did not negotiate over noncompete terms and were not more likely to accept increased compensation when offered such agreements.

Transparency and Worker Behavior

When companies were transparent about including noncompetes, it became more difficult to attract workers. However, those who agreed to these terms were more likely to violate the restrictions. The study also found that many employees did not read the noncompete clauses, and a substantial share remained unaware of the restriction until firms contacted them after employment.

Even in places like California, where noncompetes were legally voided in 2024, worker mobility was the same as when noncompetes were enforceable. Starr noted, “The presence of the clause alone changes behavior.” The study found that by removing noncompetes, worker mobility substantially increased without any increased risk of trade-secret leakage.

Implications for Companies

The findings suggest that companies should weigh the perceived benefits of noncompetes against the potential for candidate dropoff and the possibility that workers willing to sign restrictive clauses may also be more likely to violate them. This research offers a blueprint for evaluating other restrictive contractual terms, such as NDAs, training repayment agreements, nonsolicitation clauses, and no-poach agreements.

Regulatory Context

Despite attempts by the Federal Trade Commission (FTC) to regulate noncompete clauses, employers have argued that noncompetes are needed to guard trade secrets — and that workers would not agree to give up future job options unless they were compensated for it. Last year, the FTC dismissed appeals in two legal challenges related to its 2024 ban on noncompetes. In a statement, FTC Chairman Andrew Ferguson said the ban’s “illegality was patently obvious” and “would never survive judicial review.” Ferguson was one of two Republicans who voted against the ban when it was first up for approval.