The standard frame for non-compete agreements treats them as a niche concern for executives and engineers with valuable trade secrets. That frame is at least a decade out of date. Restrictive covenants have spread down the income ladder to fast food workers, hairstylists, security guards, and warehouse staff, and they function less as protection of legitimate business interests than as a quiet tax on worker mobility.
The clearest way to see what these agreements actually do is to look at what they cost workers, not what they say on paper.
The scope of the spread
The Treasury Department, the Federal Trade Commission, and academic researchers including Evan Starr at Maryland have all documented that roughly one in five American workers is currently bound by a non-compete, with another large share bound by non-solicits, training repayment agreements, or post-employment confidentiality clauses with overbroad definitions. Many of these workers earn under fifty thousand dollars a year and have no access to genuine trade secrets. The covenants exist because employers learned that the implicit threat of litigation, even unenforceable litigation, suppresses wage growth and reduces turnover. A worker who fears a lawsuit will accept a smaller raise and stay longer than one who does not.
How the extraction actually works
The clearest economic effect of restrictive covenants is that they reduce job-to-job mobility, which is the single biggest source of wage growth for most workers. A 2021 paper estimated that statewide non-compete bans, in the small number of states that have them, increased average wages by several percentage points across the affected workforce. Beyond suppressed wages, training repayment agreements force workers to “buy back” their freedom from contracts they signed under conditions of unequal bargaining power. Clawback provisions in commission and bonus plans extend that logic to compensation already nominally earned. The covenants don’t just protect information. They convert future labor market freedom into present-value savings for employers.
The legal patchwork and the FTC fight
California, North Dakota, Oklahoma, and Minnesota broadly refuse to enforce employee non-competes, and several other states have raised the bar significantly. The Federal Trade Commission under Lina Khan finalized a rule in 2024 that would have banned most non-competes nationwide. That rule has been in litigation, with a Texas district court blocking it and appellate review ongoing. The political fight matters because in the absence of a federal rule, most workers are stuck with whatever their state allows, and most states allow more than the empirical evidence justifies. Enforcement is also asymmetric: employers send threatening letters and rarely sue, but the letters work because workers can’t afford to find out.
The takeaway
Restrictive covenants are a form of labor market regulation that happens to be written by one private party against another. They have grown beyond any plausible justification rooted in trade secret protection. The serious case for sweeping reform isn’t ideological. It’s that the agreements suppress wages, reduce dynamism, and disproportionately hurt the workers least able to absorb the cost. Until the federal rule is resolved, the responsible default is to read every contract carefully and assume your future employer will read it more carefully than you did.
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