Supporters line up behind measure banning noncompetes

Backers of a proposal to eliminate noncompete agreements in Ohio made their case before a state Senate committee last month. The measure would prohibit employers from imposing restrictions on where their employees work once they’ve left their current job.

Legislative researchers acknowledge there’s no tracking system of post-employment restrictions in Ohio but note the Federal Trade Commission estimated that one in five employees in the country is operating under a noncompete contract. The FTC attempted to prohibit noncompete contracts nationally through a 2024 regulation. That effort was stymied in the courts.

The bipartisan sponsors of the Ohio proposal argue noncompetes have proliferated far beyond any reasonable scope. As an example, Sens. Louis Blessing, R-Colerain Twp., and Bill DeMora, D-Columbus, regularly cite the sandwich shop Jimmy John’s requiring workers sign noncompete agreements as a condition of employment. After public pushback, the company agreed to stop enforcing the agreements.

A blunt instrument

Employment attorney Neil Klingshirn argued noncompete agreements might be effective but they’re imprecise.

“While noncompetes may battle unfair competition,” he said, “it’s like using a lawn mower to weed your garden. When you’re done, you don’t have weeds, but you don’t have much of a garden, either.”

Klingshirn explained most states provide for some restriction on the agreements. “Only eight states in the country have no regulation of noncompetes,” he explained. “Ohio is one of them.”

While the contracts might look like an agreement between two parties, he argued, their impact spreads much further. Restricting employees’ future career choices hurts their next employers or shutters their new businesses before they can even start. It also clogs court dockets and adds drag to the economy, Klingshirn said.

Klingshirn explained the agreements are often written so broadly that they hamper movement unnecessarily. He described the sorts of cases he sees as a “recurring nightmare.”

They start with a client getting a job offer within their industry, but their current job has a trio of provisions that tend to come as a set. There’s a nondisclosure agreement (protecting trade secrets), a nonsolicitation agreement (protecting clientele) and a noncompete agreement.

“Now she can comply with the nondisclosure agreement, and she won’t be soliciting customers because in this scenario, she was in sales, but now she’s moving to logistics,” he described. “She won’t be facing any customer contact, but her noncompete says she cannot work for a competitor in any capacity for a year. This means she breaches the agreement if she takes the job.”

He argued that in those circumstances, nondisclosure and nonsolicitation agreements on their own are sufficient to protect the employer’s interests.

If the case goes to court, the judge will often encourage the parties the negotiate, and Klingshirn noted they usually do. But if not, the judge will decide, often landing in a place that balances the employer’s intellectual property and business interests with the employee’s ability to get a job — effectively right where they would’ve ended up without the noncompete agreement.

The difference, Klingshirn argued, “is about, I’d say, $50,000 in legal fees for all parties — with the same outcome. And everybody loses in that equation compared to how the nonsolicitation, trade secrets rules would have governed them.”

Other proponents

Veeva Systems provides software consulting to pharmaceutical, biotech and medical technology companies. In written testimony, company officials explained that it is organized as public benefit corporation with the elimination of noncompete agreements nationwide by 2030 as part of its mission.

In addition to advocating against the practice, Veeva noted that it actually covers the cost of legal representation for prospective employees restrained by a noncompete agreement. So far, it has defended more than 20 employees at a cost of roughly $10 million.

“For most companies (especially smaller ones), the mere possibility of legal spending at that scale is enough to discourage them from hiring an employee who might even arguably be subject to a noncompete agreement,” Veeva wrote. “And that’s true even when the noncompete is overly broad and not likely to survive legal challenge.”

Veeva included testimonials from some of the employees it has defended.

Joby George got a job right out of college and stuck around for 14 years. When he got a job with Veeva he recalled being marched out of the building and later “served legal papers at my home in front of my wife and children.” After a nearly a year in court, the judge dismissed the case.

Scott Mitreuter described managers at his old job encouraging him to look for a new gig when his line of business began to shrink, only for the company’s legal team to file suit. Peter Stark ran a company that was acquired and all of his employees had to sign noncompete agreements as part of the transaction.

“People don’t think about having their personal freedoms taken away when they sign a document to keep their job,” Stark argued. “It’s so important to protect them by abolishing noncompetes.”

Economic Innovation Group Policy Manager Sam Peak urged lawmakers not to water down the proposal. He argued exempting high wage earners could “undermine the lion’s share of the bill’s economic benefits. Pointing to Hawaii, which emphasized eliminating noncompete agreements in the tech sector, Peak claimed “entrepreneurship in the state spiked by over 10 percent.” Meanwhile, Oregon which exempted workers beneath an earnings threshold (roughly $100,000 annually), saw little change in business formation.

“These findings attest to the importance of including highly specialized knowledge workers in any noncompete reform,” Peak argued, “so that the public can reap the benefits of newly created jobs (and) services.”

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