An Empirical Analysis of Non-Competes
Mark Garmaise, an Associate Professor at UCLA’s Anderson School of Management, recently published "Ties that Truly Bind: Non-Competition Agreements, Executive Compensation and Firm Investment."
Garmaise concludes that enforcement of non-competes promotes executive stability, results in reduced executive compensation, shifts compensation towards a greater use of salary, and reduces research and development spending. The paper also scores each state in a "Non-competition Enforceability Index" based on 12 components. Louisiana scored zero during the sample time period, meaning non-competes were almost impossible to enforce. Texas scored a 3 during 1995-2004, while the high scorer was Florida with a score of 9 between 1997-2004. In light of several rulings from the Texas Supreme Court that are favorable to non-compete enforcement I would imagine Texas’ score will rise over the next few years.
The article is a fascinating read on the effects of non-competes and well worth your consideration.
