The Economics of Non-Compete
Employees who work with proprietary research method, upcoming scientific innovation projects, or sometimes with a list of clients providing technical services typically have to sign non-compete covenants. Non-Competes are considered as restraint on trade and only allowed to protect "legitimate business interest of employers." Employers decide what constitutes legitimate business interest; this can sometimes lead to over the board enforcement of non-compete covenants causing difficulties for employees after leaving the said employers. The necessity of protecting trade secret must be recognized especially in the era when copyright infringements, and misuse of patents, are rampant. Yet forcing employees to sign a non-compete-- a legal practice that most of the states employ tilts the bargaining position in favor of the employers.The central question of this study is if the non-compete contract is absolutely necessary to protect a company's good will even in cases where employees are involuntarily discharged. This study delves into past cases and some of the hypothetical arguments that employers could raise in favor of the non-compete and offers alternative solutions to such restrictive covenants. The basic idea of this covenant started in the Middle Ages and this antiquated practice has evolved into a legal norm for today's information technology industry. The current economic climate calls for fundamental reforms of such practices. This study takes an interdisciplinary approach to understand the history, economics, and legal jurisprudence of non-compete covenants. In addition to subjecting individual high-tech employees to hardships, my analysis of common law cases and historical precedents shows that non-compete covenants inhibit professional mobility of highly skilled employees in the information technology industry, prevent information dissemination and exert harmful impact on regional economy by slowing down innovation and entrepreneurship.
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