As with other areas in franchising, there are very few, if any, empirical studies regarding the economic effects of CNCs in franchise agreements. However, many resources have been expended by the government, scholars and academics on evaluating the impact of CNCs in the employment context. And because the Goldstein Law Firm believes that franchise CNCs are equivalent to employment CNCs, we view the results of these recent CNC employment studies to be directly applicable to CNCs in the franchise setting.

For instance, in 2016, the Office of Economic Policy of the U.S. Department of the Treasury, published “Non-compete Contracts: Economic Effects and Policy Implications.” This study found that although CNCs could provide many social benefits, such as the promotion of innovation and the provision of training, they could also impose significant costs on workers, through lower wages and less productive job path formulation. Most important, the study concluded that there is reason to believe that many specific instances of non-compete agreements are less likely to produce previously conjectured social benefits. In this regard, the study states:

  • Non-competes are often used by employers in non-transparent ways:
    • Many workers do not realize when they accept a job that they have signed a noncompete, or they do not understand its implications.
    • Many workers are asked to sign a non-compete only after accepting a job offer. One lower-bound estimate is that 37 percent of workers are in this position.
    • Many firms ask workers to sign non-competes that are entirely or partly unenforceable in certain jurisdictions, suggesting that firms may be relying on a lack of worker knowledge. For instance, California workers are bound by noncompetes at a rate slightly higher than the national average (19 percent), despite the fact that, with limited exceptions, non-competes are not enforced in that state.
  • Only 24 percent of workers report that they possess trade secrets. Moreover, less than half of workers who have non-competes also report possessing trade secrets, suggesting that trade secrets cannot explain the majority of non-compete activity.
  • Non-competes are common among workers who report lower rates of trade secret possession: 15 percent of workers without a four-year college degree are subject to noncompetes, and 14 percent of workers earning less than $40,000 have non-competes. This is true even though workers without four-year degrees are half as likely to possess trade secrets as those with four-year degrees, and workers earning less than $40,000 possess trade secrets at less than half the rate of their higher-earning counterparts.
  • Available evidence suggests that workers with a low initial desire to switch jobs are not more likely to match with employers who require non-competes.
  • In some cases, non-competes prevent workers from finding new employment even after being fired without cause; in such cases, it is difficult to believe that non-competes yield social benefits.
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ACQ5 LAW AWARDS 2019

US (New York)
Franchise Lawyer
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ACQ5 GLOBAL AWARDS 2019, JEFF GOLDSTEIN, GOLDSTEIN LAW FIRM, PLLC

ACQ5 LAW AWARDS 2019

US (New York)
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Goldstein Law Firm, PLLC

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