Massachusetts’s Route 128 high-tech corridor was supposed to be America’s high-tech capital. In the 1970s, armed with talents from Harvard and MIT and home to computer companies like Digital Equipment Corp. and Wang Laboratories, the Boston metro area was leading the charge for minicomputer innovation. Back then, the total technology employment in the area was roughly triple that of Silicon Valley, and the notion of Silicon Valley outshining Boston as the high-tech capital seemed implausible. Fast forward to 1995. Silicon Valley saw the highest increase in export sales among U.S. metro areas, while Boston did not make the top five. What explains Silicon Valley’s rise and Boston’s decline? Legal scholars have identified one key reason: while most states, including Massachusetts, enforce noncompete agreements, California does not. The result was a strikingly open culture in Silicon Valley where employees are free to go from one company to another or start their own, enabling and sustaining more successful regional development. In the last decade, there has been a surge in public initiatives including new legislations and regulatory initiatives aiming to reign in employers’ use of noncompetes, with the most recent example being the FTC’s issuance of its final rule banning nearly all noncompete agreements. The final rule has yet to take effect, however, and legal challenges are already looming. Rather than just describing the new FTC rule, we should examine noncompetes’ anticompetitive effects, a critical aspect of the rule’s underlying rationale. As a growing body of academic literature asserts, noncompetes are restraints against competition, and they are harmful to both employees and the economy. As one of the major levers that the federal government has over the economy, antitrust laws can provide significant deterrence to abuse of noncompetes by employers.

The Spectrum of State Laws on Noncompetes

The legal system has historically addressed noncompetes almost entirely under state common law. Nowadays, the treatment of noncompete provisions varies significantly from state to state. On one end of the spectrum, five states completely prohibit almost all noncompete agreements. These states include California, Colorado, Minnesota, North Dakota and Oklahoma. On the opposite end of the spectrum regarding enforceability, numerous states rely on common-law development to assess non-compete agreements and generally uphold noncompete agreements. However, all states subject such agreements to closer scrutiny than typical contracts by applying a balancing test that requires employers to show a “protectable interest,” or requires more than minimal consideration. Generally, under the balancing test, a court must consider whether the restraint is greater than is needed to protect the employer’s legitimate interest; the hardship to the employee; and (3) the likely injury to the public. See Modern Environments v. Stinnett, 561 S.E.2d 694 (Va. 2002).