The Babysitter Clause and the Problem of Partial Noncompete Bans
Why half measures fall short
If you work in Washington, DC, and earn a middle-class salary, your employer cannot legally stop you from taking another job or starting a business in your field.
Unless, that is, you’re a babysitter.
Washington, DC bans noncompete agreements for workers earning below roughly $160,000 a year. But the ban expressly excludes “casual babysitters,” meaning that a teenager in high school who occasionally watches their neighbor’s kids can be legally barred from babysitting for anyone else.
While defenders of noncompetes argue that they act as protection for trade secrets, client relationships, and training investments, none of this applies to casual babysitters. They are both highly replaceable and unlikely to know anything damaging to their employers.
The absurdity of DC’s babysitter exception is emblematic of what noncompete policy often looks like when states opt for a partial ban: divisions by income, occupation, or industry that tend to be arbitrary, confusing, and difficult to enforce.
Truly Un-exception-al
Businesses take advantage of this confusion by applying noncompete agreements far more broadly than is necessary to protect their proprietary information. News stories and multiple studies and surveys have uncovered countless examples of employment restrictions on workers whose job mobility poses no special threat to their employers: sandwich makers, house cleaners, temporary warehouse workers, and more.1
By one 2014 estimate, 38 percent of workers have worked under a noncompete at some point in their lives. This despite the fact that other enforcement mechanisms, such as nondisclosure agreements, already exist to protect business interests and are much less harmful to employees and the economy as a whole.2 3
Some states are beginning to recognize the problems with partial noncompete bans. Washington State, for example, first adopted a noncompete ban only for workers with annual earnings below $100,000 in 2020. But just six years later, it passed a new law replacing that partial ban with a full retrospective noncompete ban for all workers,4 extending protections to the remaining 15 percent of the state’s workforce and 43 percent of the state’s total earnings.5 (Retrospective noncompete bans are those that invalidate existing bans in addition to outlawing future ones.)
Washington now joins California, Minnesota, Oklahoma, and North Dakota in fully banning noncompetes.
Unfortunately, workers in the other 45 states and DC are still reliant on incomplete and uneven protections. Large parts of the workforce remain vulnerable to contracts that suppress mobility and discourage entrepreneurship.
The story of Epic, a megalithic electronic health records (EHR) company, offers a particularly stark example of the rationale in favor of universal bans, with no carveouts, on noncompete agreements. Based in Wisconsin, which only limits how long noncompetes can last, Epic requires its employees to sign a noncompete that prevents them from working for any of the roughly 4,500 companies across the United States on its “blacklist” that either compete with Epic or are connected to its customers and partners. This noncompete effectively forces workers leaving the company to exit the healthcare industry entirely. Former Epic employees can’t even create their own healthcare start-up or business for the duration of their noncompete clause.
Leaving workers with such narrow options effectively negates their power to negotiate with their employer. Noncompetes thus can suppress wages, restrict the flow of talent and ideas, and limit new business formation.
Job-Type Noncompete Bans
By far the most common type of partial noncompete ban is based on job type. These laws selectively protect workers in specific industries or with particular job titles or legal statuses — such as physicians, healthcare workers, or employees paid by the hour — on the theory that noncompetes for these types of workers are especially likely to harm them or the wider economy. All other workers are still subject to noncompetes from their employers.
Noncompete bans that focus on specific job types are often so comically narrow that they may as well not exist at all. Kentucky and Iowa, for example, ban noncompete agreements only for nurses, home health aides, and other health staff who contract with healthcare employment agencies instead of working for hospitals directly. Connecticut has a noncompete ban for workers specifically in non-cable broadcasting companies. And in Vermont, noncompetes are banned only between barbering and cosmetology students and their universities. Predictably, less than 0.1 percent of each state’s workforce is covered by each of these provisions.6
Even some of the broadest noncompete bans by job type end up covering very few workers. Nevada’s noncompete ban for all hourly workers, for example, covers only about 10 percent of its workforce.7
Job-type noncompete bans are also the easiest bans for firms to circumvent. A mere title or classification change can be the difference between whether or not a noncompete is enforceable for a worker doing otherwise similar tasks. Under Nevada’s noncompete ban for hourly workers, for example, a retail worker paid hourly may be protected, while a salaried worker doing nearly identical work is not. These laws simply fail to be a meaningful impediment to firms imposing noncompete agreements on their employees.
And in edge cases where the legal enforceability of a worker’s noncompete agreement is unclear, many workers will assume their noncompetes are binding. Studies show that even clearly unenforceable noncompete agreements significantly reduce workers’ job mobility behavior and new employers’ willingness to hire them.
Finally, noncompete bans by job type can distort the labor market by artificially making some jobs more appealing to workers than others. When only some jobs carry noncompetes, workers may avoid otherwise better matches in favor of less restrictive roles, leading talent to flow toward jobs with fewer contractual barriers rather than where it would be most productive. This misallocation will ultimately reduce both job match quality and overall economic efficiency.
Income-Based Bans
Income-based noncompete bans forbid noncompetes for all workers earning below a certain income level. One upside of these bans is that they are much simpler, making it apparent when a noncompete is enforceable and when it is not. Another is that they tend to cover much wider swaths of the workforce, depending on the level of the income cutoff.
While most job-type bans apply to less than 5 percent of their state’s workforce, New Hampshire’s noncompete ban for workers earning less than 200 percent of the state’s minimum wage — about $29,000 per year in 2024 — covers more than 25 percent of the state’s workers. And the income-based noncompete thresholds are typically much higher in the other states that have them. Oregon, for example, bans noncompete agreements for those earning below about $116,000 per year in 2024 dollars, protecting about 85 percent of its workforce.8
Higher earners, however, are by definition left exposed by income-based noncompete bans. These workers are typically the most specialized and therefore the most likely to engage in the kinds of productive activities, like starting businesses and transferring skills across firms, that are restricted by noncompetes.
Narrow specialization also makes it substantially more difficult to find a new job that doesn’t violate the terms of their noncompete without leaving the entire industry, so the harm of a noncompete agreement to high-income workers themselves can be especially pronounced.
High earners furthermore account for a disproportionately large share of total income, which means that income-based noncompete bans protect a much smaller share of total earnings than of workers. New Hampshire’s ban on noncompetes for workers earning below twice the minimum wage, for example, covers 25 percent of its workforce but only 6 percent of the state’s total income. So failing to ban noncompetes for these workers leaves a great deal of economic activity vulnerable to restriction.
Income-based noncompete bans are an effective way to protect lower-wage workers from abusive business practices, but states still sacrifice a great deal of productive activity by allowing noncompetes for high earners.
Just Go All the Way
We recognize that political reality differs from state to state. In some places, given the absence of federal action, a full ban may not yet be possible. Advocates of a universal ban on noncompetes sometimes need to make concessions to protect at least some workers. They might acknowledge that a partial noncompete ban has risks but nonetheless consider it better than no ban at all.
Consider a few recent examples of states moving towards a partial ban:
Utah passed out of committee a noncompete ban for non-exempt workers, students, contractors, and employees earning below $155,000 per year;
Virginia’s state legislature approved new protections for licensed medical practitioners and discharged employees;
New York state is debating a noncompete ban for workers earning less than $500,000 per year.
Partial bans, especially when applied clearly and to a wide swath of the labor force, can still be large net positives for workers and the economy, reducing barriers to mobility and improving labor market dynamism. They are especially worthwhile if they prove to be an incremental step on the way towards a complete ban, as was the case for Washington.
But we also encourage advocates of partial bans to remember the evidence: Banning noncompetes for certain job types or income levels helps curb some abuses, but it leaves intact many of the mechanisms by which noncompete agreements hurt most workers and stifle innovation and entrepreneurship.
The best way to achieve a stronger, fairer, and more dynamic economy is for states to ban noncompetes entirely.
See our GitHub with replication code here.
Two surveys of private sector firms across the U.S. found that around 30 percent of surveyed companies require non-compete agreements for every single one of their employees, from the CEO down to the custodial staff. Similarly, according to a 2022 GAO report, 55 percent of firms impose noncompetes on all of their hourly employees – think cashiers, delivery drivers, fast food workers, and interns. As with casual babysitters in D.C., the idea that the average burger flipper or unpaid intern is in possession of trade secrets so valuable that their former employer would be harmed by their working elsewhere is laughable.
Nondisclosure agreements, which are already common in many industries, forbid former employees from sharing information about their previous job without limiting them from finding a new job or starting their own business. And patents and copyrights are still enforceable outside of a noncompete agreement.
The best evidence tells us that noncompete agreements are harmful to workers. Studies have shown that workers subject to stricter noncompete enforcement earn around 6 percent less than those in the same occupations without enforceable noncompetes by limiting workers’ ability to switch to higher-paying jobs. And contrary to popular belief, noncompetes are not consistently associated with more training or firm investment in their employees. Noncompete agreements also damage the economy by preventing worker mobility and slowing hiring, information flows across firms, and business formation. Several studies have found that increases in noncompete enforceability reduces patenting by between 12 percent and 19 percent. And in a recent survey, 35 percent of small business owners reported that they’ve been prevented from hiring an employee due to a noncompete agreement. This hurts other firms and the economy at large by reducing the pool of qualified job applicants and stifling innovation.
Prospective bans, like Minnesota’s, prohibit new noncompete agreements going forward but leave existing agreements in place. This significantly slows these bans’ impact, as any noncompete already limiting workers remains enforceable. Retrospective bans, by contrast, invalidate existing noncompetes as well, immediately expanding protections to all eligible workers and restoring bargaining power and mobility to those who would otherwise remain locked in place. For states aiming to immediately reduce the harms of noncompetes, therefore, retrospective bans are the way to go.
Author’s calculations from state noncompete statutes and 2024 ACS 1-year data.
Author’s calculations from state noncompete statutes and 2024 ACS 1-year data.
Author’s calculations from state noncompete statutes and 2024 ACS 1-year data.