AmiSight 4/15: The Rising Impact of Noncompete Agreements on U.S. Entrepreneurship

As more employers require new hires to sign noncompete agreements, many potential entrepreneurs may be scared off from the idea of starting a new business with former colleagues and ideas they have gathered along the way.

There has been more than a 60% increase over the past decade in the number of departing employees who are getting sued by their former bosses for breaching noncompete agreements, according to research that the law firm Beck Reed Riden LLP conducted for The Wall Street Journal.

Companies say noncompete agreements are needed to prevent insiders from taking trade secrets, business relationships, or customer data to competing firms when they leave. Most often aimed at top executives, the clauses are reaching further into organizations to include sales representatives, engineers, and people involved in research and innovation.

As some worry, these clauses are having an unintended damping effect on the U.S.—by deterring individuals from leaving the corporate world or by making it harder to hire talent—some states are now exploring ways to limit their scope and enforceability.

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