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Non-compete clauses contribute to Michigan brain drain, study says

Dan Moyle
Flickr Creative Commons

States like Michigan that allow employers to enforce non-compete clauses may be inadvertently hurting their economies, according to a recent study.

Employers sometimes require new employees to sign a non-compete agreement promising they won't go work for another company in the same industry for one or two years after leaving their job.

"One of the underappreciated consequences of non-competes is that they result in a brain drain of some of the best workers," said MIT professor Matt Marx and one of the study's co-authors. 

Marx said the study showed that high talent knowledge workers were twice as likely to leave Michigan as workers in other states where non-competes are illegal and therefore unenforceable.

"Some of the best workers realizing that their future is constrained if they sign a contract like this in a state where it's allowed, they simply vote with their feet," said Marx. And the departing Michigan workers gravitated to states that don't enforce non-competes. 

Marx said the study took into account other possible explanations of why the workers left, such as the decline in Michigan's car and related industries, general patterns of relocation, and rapidly growing industries in other states.

The study focused on Michigan because in 1985 Michigan changed its longstanding ban on non-compete clauses to a policy permitting them.

–Virginia Gordan, Michigan Radio Newsroom