Jessica Jeffers' Research Informs New FTC Non-Compete Policy: A Push for Enhanced Labor Mobility and Innovation

In January 2023, the US Federal Trade Commission (FTC) proposed to ban non-compete clause rules, a move inspired by California's success, where the absence of such clauses has contributed to Silicon Valley's growth. As part of the decision-making process, the FTC reviewed more than 26,000 public comments, analyzed data, and consulted recent research, notably a study by Jessica Jeffers, Associate Professor of Finance at HEC Paris. Jeffers' research is cited prominently in the FTC’s final rule, aiming to boost labor mobility, foster innovation, and reinforce American leadership in global markets.

Non-compete clauses have long restricted approximately 30 million U.S. workers from joining competing firms after leaving their job. Originally intended to protect trade secrets, these agreements have often been misused to limit employee mobility unfairly. Jeffers' study sheds light on the far-reaching impacts of these clauses.

How non-compete clauses affect worker mobility, investments, and entrepreneurship

Published in The Review of Financial Studies in 2024, Jeffers' research found that increasing non-compete enforceability correlates with lower rates of employee departures, especially to competing firms within the same industry. She also found that expanding non-compete enforceability significantly increased corporate investments while decreasing new business creation, especially in knowledge-intensive sectors. Here is how the professor summarizes her research:

“This paper examines how labor mobility restrictions like noncompete agreements affect firms’ investment decisions. Using matched employee-employer data from LinkedIn, I show that increases in the enforceability of noncompete agreements lead to widespread declines in employee departures, specifically in knowledge-intensive occupations. Established firms that rely more on these knowledge-intensive occupations increase their investment rate in physical capital. However, new firm entry in corresponding sectors declines.”

I show that increases in the enforceability of noncompete agreements lead to widespread declines in employee departures, specifically in knowledge-intensive occupations. 

How the research inspired the policy change

The FTC’s January 2023 proposal to ban non-compete agreements explicitly cited Jeffers' work. The final rule, enacted in April 2024, prohibits employers from implementing non-compete clauses that restrict worker mobility. It addresses concerns that these agreements stifle competition, suppress wages, and hinder innovation. The FTC recognized Jeffers' contribution to shaping this policy, writing to thank her for her contribution to shaping the rule and for her engagement in the rulemaking process.

This case illustrates the tangible influence that academic research can have on public policy and organizational practices.

Ongoing debates on non-compete clauses in the U.S. and Europe

The impact of non-compete clauses remains a matter of debate. In Europe, non-compete agreements are rare, but high layoff costs present other economic challenges. In France, American banks and tech entrepreneurs are pushing for less protective regulations for highly paid employees to enhance competitiveness,   illustrating the ongoing debate over balancing employee protection and economic dynamism.

Reference: Jeffers, Jessica. "The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship." The Review of Financial Studies, 2024. Funded by the HEC Foundation’s Research Committee. Read here.

Learn more about this research and its impact on the non-compete rule in the press:

“Don’t like your job? Quit for a rival firm”, The Economist, April 25, 2024.
« Le secret social de la Silicon Valley », Les Echos (in French), April 30, 2024.