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Noncompete agreement enforcement level and entrepreneurship

Noncompete agreements can limit what kinds of job offers an employee could take or what kinds of jobs from other companies they could pursue after leaving their current employer. Such agreements can also put restrictions on what kinds of new businesses a person could form after their time with their current employer ends.

So, whether the employment contract they ultimately reach with their employer contains a noncompete clause and what the specific terms are of any such clause that is present can have significant long-term implications for an individual. So, the issue of noncompete agreements can be a key one in employment contract negotiations. When in negotiations on noncompete agreements or other impactful employment contract terms, a prospective employee may desire a skilled employment contract attorney’s advice and representation.

Noncompete agreements and how they are enforced not only can have major ramifications for individual employees, but can also have impacts on a state as a whole. A recent study raises questions as to how entrepreneurship in a state is affected by noncompete agreements.

The study looked at how the level of strictness of noncompete agreement enforcement in a state affected how common it was for employees in the state to leave their current company to create a new business. The study indicated that:

  • The occurrence of employees ending their time with a company to form a new business in the same field was down in states where the enforcement of noncompete agreements was strict.
  • In states with strict noncompete clause enforcement, it might be more common for employees to leave a business to get a new business off of the ground in a different field, but this increase in prevalence is likely not as big in degree as the above-mentioned decrease in same-field new businesses.
  • The above-mentioned drop in same-field new businesses might particularly lower the number of lower-quality new same-field businesses being formed.

While there are different ways these findings could be read, they do seem to indicate that noncompete agreement enforcement level in a state can have ramifications on entrepreneurship. What entrepreneurship is like in a state can affect many things for a state, including levels of business competition and overall economic conditions. What sort of noncompete agreement enforcement level do you think would do the best things for entrepreneurship here in Texas?

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