Unleashing Corporate Entrepreneurship

Authors

Bernice A. Grant

Abstract

Noncompetition agreements (noncompetes), which prohibit employees from launching or working at competitive companies for certain periods, have become increasingly prevalent in the workplace. Employers claim they need noncompetes to protect their trade secrets and other legitimate business interests, but most workers do not have access to trade secrets—and when they do, such secrets can be better protected through confidentiality and intellectual property agreements. In practice, many companies appear to use noncompetes as an employee retention tool, but this is not a legitimate purpose for a noncompete. In addition, noncompetes have a disproportionately negative impact on women, people of color, and low-wage workers and are challenging to impose on the modern, remote workforce. Negative media attention concerning the proliferation and abuse of noncompetes has recently led numerous states to pass legislation limiting their use. In addition, the Federal Trade Commission recently issued a noncompete ban that, if upheld, would create a sweeping change in workplace law, but it is subject to judicial challenge. However, in the flurry of activity, policymakers have not sufficiently considered the employee retention motive underlying many employers’ noncompetes. Noncompetes are built on a corporate culture where employee exit is presumed—and feared. This article suggests a different approach: creating a culture that decreases employees’ incentives to exit while increasing their incentives to remain, thereby reducing the need for noncompetes. The article makes two main claims. First, it argues that the government should ban noncompetes, other than for highly compensated employees, because noncompetes are increasingly unenforceable, have adverse effects, and are often used for illegitimate reasons. Second, it argues that companies should encourage intrapreneurship—i.e., entrepreneurship within a company—rather than noncompetes, which discourage entrepreneurship. This counterintuitive approach is grounded in organizational behavior and sociological theories about the modern workplace, in which millennials are now the largest generation. Intrapreneurship fosters innovation and employee retention in a more effective and less harmful manner than noncompetes, which have become incongruent with the modern workforce.

Recommended Citation

Bernice A. Grant, Unleashing Corporate Entrepreneurship, 89 Brook. L. Rev. 1031 (2024).
Available at: https://brooklynworks.brooklaw.edu/blr/vol89/iss4/1